Minimum Wages and Contract Duration in Germany

Pré-publication, Document de travail: We assess the effect of the introduction of a minimum wage policy of 8.50 EUR/hour in Germany in January 2015 on the probability of transitioning from fixed-term to open-ended contracts. Utilizing administrative data from social security records, we compare ex-ante affected (i.e., those earning below the minimum wage) workers against unaffected ones during the pre-implementation period, and find a significant decline in the probability that ex-ante affected workers employed under fixed-term contracts transition to open-ended contracts as the ending month of their fixed-term contract approaches January 2015, when the minimum wage policy was enforced. We interpret our empirical results through the lens of a job search model where firms use fixed-term contracts as a probation phase to learn about the matchspecific productivity with a given worker. In this model, firms sign open-ended contracts based on a productivity threshold rule. A sufficiently high minimum wage can push this threshold up, thus reducing the probability at which workers transition from fixed-term to open-ended contracts.

Auteur(s)

David Margolis, Victor Saldarriaga

Date de publication
  • 2023
Mots-clés JEL
J23 J30 J38 J63
Mots-clés
  • Minimum Wage
  • Employment Contracts
  • Job Duration
  • Turnover
Référence interne
  • PSE Working Papers n°2023-32
Pages
  • 40 p.
Version
  • 1