Abstract
We analyze well-being effects of minimum wages, using the introduction of the minimum wage in Germany as a quasi-experiment. Based on representative data, a difference-in-differences design compares the development of life, job, and pay satisfaction between employees who are affected by the reform according to their pre-intervention wages and those who have marginally higher wages at outset. We find significantly positive effects on all considered dimensions of well-being. The results hold for at least 1 year after the reform, are more pronounced in East Germany, and hold if those who are not employed anymore after the reform are included.
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Notes
Most studies find no negative effects (Card 1992; Dickens et al. 1999; Dolton et al. 2015; Dube et al. 2010; Garloff 2016; Katz and Krueger 1992; Machin and Manning 1994; Stewart 2004a, b) or negative effects that are either modest or only hold within specific groups (Bossler and Gerner 2016; Burkhauser et al. 2000; Caliendo et al. 2017a; Gittings and Schmutte 2016; Lopresti and Mumford 2016; Machin et al. 2003; Neumark and Wascher 1992; Rama 2001; Sabia et al. 2016; Schmitz 2017; Sturn 2018; Zavodny 2000; see also the reviews by Neumark and Wascher 2007; Neumark et al. 2014).
Socio-Economic Panel (SOEP), data for years 1984–2015, version 32, SOEP, 2016, https://doi.org/10.5684/soep.v32.
Interns must be paid the minimum wage only after graduating but not if the internship is part of their education.
In this article, we present the formulations from the English version of SOEP. Both the English and the original German version are accessible at: http://www.diw.de/en/diw_02.c.222729.en/questionnaires.html.
Therefore, our measure of hourly wage is based on earnings data. Earnings are assumed to be almost equal to wages, because self-employed workers are excluded from the analysis.
Respondents state how many hours they work on average per week, including potential overtime.
The model has the following form: The probability of a certain level k of unstandardized satisfaction Y is: Pr (Yit = k) = Pr (ck−1 < β1 * d(group)i + β2 * d(year)t + β3 * d(group)i * d(year)t + B * controlsit + εit ≤ ck, where c are the cutoff points.
In addition to observing average wages, we also check the distribution of wages in the treatment group prior to the reform. We find that the distribution is remarkably similar between East and West Germany (see Figure S9 in the Supporting Information).
A comparison of the 90% confidence intervals of the effects in East and West Germany indicates that the effect on life satisfaction is actually larger in East than in West Germany, while the confidence intervals of the effects on job and pay satisfaction overlap between East and West Germany.
This result does not imply that employment has no effect on well-being. In our sample, among the individuals who do not remain employed from 2014 to 2015, average well-being decreases from 6.89 to 6.81 in the treatment group and from 7.28 to 7.08 in the control group. The decreases are larger when we focus on those who do not work in 2015 and are additionally registered unemployed in 2015. However, none of the decreases is statistically significant. Moreover, the effect of the minimum wage on employment is relatively modest, as most affected individuals remain employed.
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For valuable ideas, comments, hints, and discussions we thank Liana Bomm, Mario Bossler, Alina Elrich, René Fahr, Urs Fischbacher, Bernd Frick, Gamze Görel, Daniel Kamhöfer, Martin Kocher, Holger Meyer, David Neumark, Christian Pfeifer, Kerstin Pull, Toralf Pusch, Valentin Schiele, Hendrik Schmitz, Carsten Schröder, Dirk van Straaten, Matthias Westphal, Svenja Winkler, and Philip Yang. We also thank participants of the 21st Colloquium on Personnel Economics (COPE), Munich 2018, and of the Conference on the Evaluation of Minimum Wages at the German Institute for Economic Research (DIW), Berlin 2018.
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Gülal, F., Ayaita, A. The Impact of Minimum Wages on Well-Being: Evidence from a Quasi-experiment in Germany. J Happiness Stud 21, 2669–2692 (2020). https://doi.org/10.1007/s10902-019-00189-5
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DOI: https://doi.org/10.1007/s10902-019-00189-5