The spill-over effects of Germany’s first federal minimum wage

Abstract: This paper investigates whether individuals who earn marginally above a minimum wage are experiencing spill-over effects as a result of its implementation, adjustment and existence. It focuses on Germany’s federal statutory minimum wage regime that was introduces in 2015 and later adjusted in 2017, through the experiences of individuals who earned 100% to 110% of the new wage floor in 2014. Using data from the German Socio-Economic Panel (SOEP), this paper utilizes a difference-in-differences approach by exploiting an exogenous regional variation in treatment intensity between East- and West Germany. The main findings include that the minimum wage has negative spill-over effects on the hourly wages throughout the post-treatment period. The paper does not find any spill-over effects on employment probabilities or total labour earnings or monthly hours worked. Furthermore, it does not investigate which channels the spill-over effects operate through, but rather focuses on investigating their existence. These results imply that a minimum wage reform may have an unforeseen negative impact on this group of individuals, a lesson for policy makers that means to introduce similar schemes.