The price and employment response of firms to the introduction of minimum wages

This paper studies the price and employment responses of firms to the introduction of a nationwide minimum wage in Germany. Widely throughout the economy, affected firms responded by rapidly and frequently increasing prices without cutting employment. These decisions are strongly interrelated: Firms...

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Bibliographic Details
Published in:Journal of public economics 2024-11, Vol.239, p.105236, Article 105236
Main Author: Link, Sebastian
Format: Article
Language:English
Subjects:
Employment
Interrelation of firms’ choices
Minimum wage
Price pass-through
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Summary:This paper studies the price and employment responses of firms to the introduction of a nationwide minimum wage in Germany. Widely throughout the economy, affected firms responded by rapidly and frequently increasing prices without cutting employment. These decisions are strongly interrelated: Firms that increased prices relatively more often also showed a less negative employment response. The relative importance of both margins is associated with product market competition and the specific economic situation firms face when being treated. The empirically strong interdependence suggests that the employment effects of minimum wages may not be properly understood when abstracting from other adjustment margins. •Study firms’ price and employment response to introduction of German minimum wage.•Firms raised prices more frequently instead of cutting jobs.•Firms’ adjustments along these important margins tend to be interrelated.•Relative importance tied to competition and economic conditions upon treatment.•Employment effects may not be fully understood when abstracting from other margins.
ISSN:0047-2727
DOI:10.1016/j.jpubeco.2024.105236