Building the Minimum Wage in Germany - Germany's First Sectoral Minimum Wage and its Impact on Wages in the Construction Industry

This study analyzes the impact of the introduction of the first sectoral minimum wage in 1997 in the German construction sector on hourly wages and their distribution. The minimum wage was introduced only in certain sub-sectors of the industry and just blue-collar workers were eligible. In the setting of a natural experiment neighboring 4-digit-industries and white-collar workers are used as control groups for differences-in-differences(-in-differences) estimation based on two cross sections of a linked employer-employee data set (GLS) that covers establishments with 10 or more employees. Descriptive evidence and estimation results show that the minimum wage did not bite in West Germany but that there was a considerable impact in East Germany. Eligible workers experienced an wage increase of 15.5%. (Un)conditional quantile regressions for the group of East German non-unionized blue-collar workers in 2001 moreover reveal that the wage distribution in the covered industry is more compressed after the minimum wage introduction. Compared to a quite stable premium in 1995 the lower quartile exhibits a premium between 16% and 10% in 2001.