Essays on Wages and Minimum Wages in Frictional Labor Markets

Abstract

"In Germany’s frictional labor market, the relationship between wages and institutional or market frictions remains a key focus of economic and policy debates. This dissertation investigates the causal links between wages and minimum wages, labor market tightness, and matching frictions. The analysis is structured around three empirical essays, each examining a different causal relationship: the long-term effects of minimum wages on wages, the impact of minimum wages on job vacancies, and the effect of labor market tightness on wages. The first two chapters assess institutional Impacts - specifically the German statutory minimum wage introduced in 2015 - while the third chapter shifts focus to changing market conditions, particularly worker shortages. All studies employ rich administrative datasets from the German Federal Employment Agency and apply advanced causal inference methods. Chapter 1 This essay develops a machine learning approach to better estimate long-run wage effects of the German minimum wage. Traditional studies use a fixed pre-treatment indicator ("bite") based on wages before policy implementation, which can be inaccurate in the long run due to labor market dynamics. This chapter introduces a dynamic, time-variant bite prediction using LASSO-based models, estimating both the probability of being affected and the intensity of treatment (bite gap). The models are trained on administrative wage and working hour data from 2010–2014 and predict minimum wage exposures for 2015–2020. Using difference-in-differences estimation to identify causal effects of the minimum wage introduction, the study finds that conventional methods might overestimate the minimum wage effect. The machine learning approach yields smaller but stable positive wage effects over time, suggesting that standard evaluations may conflate wage growth unrelated to policy with treatment effects. The contribution lies in providing a more realistic long-term assessment of policy impact, accounting for dynamic selection into treatment groups over time. Chapter 2 This essay examines how the minimum wage introduction affected job vacancies, focusing on matching frictions. The analysis relies on vacancy data and employment biographies aggregated at the occupation level. A difference-in-differences design compares occupations with differing minimum wage exposure during 2013–2019. The findings suggest that while the overall number of job postings did not decline, the share of canceled vacancies rose by 4–9 percent, and the duration of successful hires increased by 5–6 percent. These results indicate heightened matching frictions, likely due to stricter hiring standards and reduced occupational mobility. Supplementary analyses show fewer worker transitions between occupations. The study concludes that minimum wages, although showing limited effects on employment levels, can increase frictions in the matching process and delay vacancy filling. Chapter 3 Shifting the perspective, this chapter investigates how increased labor market tightness - driven by declining unemployment and rising vacancies - affects wage growth. Using an instrumental variables approach based on leave-one-out instruments, it estimates the causal impact of local labor market tightness across occupations and regions. The results show a positive but moderate wage response to increased tightness, accounting for about 7–19 percent of Germany’s real wage growth between 2012 and 2022. The effects are particularly pronounced for newly hired workers, high-skill jobs, the service sector, and Eastern Germany. Notably, wages in low-wage firms rose disproportionately, suggesting a compression of wage inequality. This complements the institutional effects studied in Chapters 1 and 2 by highlighting market-driven wage adjustments. In the overall conclusion, the dissertation emphasizes the dual role of institutional and market-driven mechanisms in shaping wages and labor market frictions. It illustrates how policies like minimum wages can introduce unintended frictions while elevating wages, and how market conditions such as worker scarcity can independently drive wage growth. Methodologically, the studies underscore the value of high-resolution administrative data and robust causal inference techniques in labor economics." (Author's abstract, IAB-Doku) ((en))

Cite article

Börschlein, E. (2025): Essays on Wages and Minimum Wages in Frictional Labor Markets. 237 p. DOI:10.5283/epub.76880