Abstract

The objective of the project is to develop an econometric structural equilibrium search model that can be used for ex-ante simulations of the introduction of a uniform minimum wage in Germany. The target of the model is to improve our understanding of the magnitude of search frictions and the extent of employers’ resultant market power on the German labour market. To accommodate a wide range of employment effects, we will base our model primarily on the work of Bontemps, Robin and van den Berg (1999), whose model allows for negative, zero or positive employment effects. The estimation of the model will be based on large-scale administrative German data. We will  validate our model by comparing its predictions to the results from quasi-experimental studies on the introduction and changes in sectoral minimum wages. Finally, we will use the model to conduct a number of policy simulations, including the systematic variation of the level of a uniform minimum wage over a large range of values.