Abstract

The statutory minimum wage, that was introduced in Germany in the year 2015, varied considerably compared to regional wage measures. We utilise this fact in order to derive estimates for, on the one hand, the range within which a minimum wage would not have a detrimental effect on employment levels and, on the other, the level at which employment would actually be maximised. For this end, we first provide reduced-form evidence for the effects that the minimum wage had on various labour market outcomes as well as on goods and housing markets. Based on this evidence, we derive a model of a monopsonistic labour market that gives rise to a bell-shaped relationship between the level of the minimum wage and the employment effects that it gives rise to. This relationship is then tested empirically to quantify the above-mentioned range and the implied employment-maximising minimum wage level.