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A�ectedness and anticipatory behavior
in response to the new German minimum wage:
the role of industrial relations
Lutz Bellmann∗
Mario Bossler†
Hans-Dieter Gerner‡
Olaf Hübler�
June 2015
∗Institute for Employment Research, Friedrich-Alexander-University of Erlangen-
Nuremberg, and IZA.†Corresponding Author: Institute for Employment Research, Department Estab-
lishments and Employment, Regensburger Str. 104, 90478 Nuremberg, e-mail:
mario.bossler@iab.de, phone: +49-911-179-3043.‡University of Applied Sciences Koblenz and Institute for Employment Research.�Leibniz Universität Hannover, IZA and IAB.
1
Abstract
In Germany, a new minimum wage of e8.50 per hour of work came into
force on 1 January 2015 . The minimum wage is largely binding and followed
a long lasting policy discussion, making anticipatory adjustments likely. Us-
ing the IAB Establishment Panel, we assess the role of industrial relations
in this respect. Descriptive regressions show that �rms with a works coun-
cil and collective bargaining are less likely a�ected by the new minimum
wage. When studying reactions ahead of the minimum wage introduction,
we observe that anticipatory wage adjustments are particularly emphasized
at establishments with collective bargaining. Looking at other adjustments
related to industrial relations, we �nd that the a�ected establishments' col-
lective bargaining coverage decreases. We also �nd that employers seek �exi-
bility and try partially to compensate the additional minimum wage costs by
using overtime work and working time accounts. Finally, a�ected employers
tried to increase productivity by the use of further training. [150 words]
2
1 Motivation
Employees in Germany face a decreasing coverage in collective bargaining
(e.g. Addison et al. 2011). Figure 1 shows this trend in a descriptive time
series for the period from 1996 to 2014. While in the late 1990s more than
60 per cent of the work force was covered by collective bargaining, this rate
fell to about 40 per cent in recent years. A similar trend can be shown for
the fraction of employees that is represented by a works council, which fell
from about 40 per cent to 35 per cent within the same period. Together,
these patterns show a severe deterioration in fundamental institutions of the
industrial relations in Germany.
Figure 1: Time series of industrial relations' coverage in Germany
0
20
40
60
Cov
erag
e in
per
cen
t
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014Year
Industry-level collective bargainingFirm-level bargainingWorks council
Notes: Yearly average coverage weighted by establishments size, which allows an interpreta-
tion in terms of covered employees.
Source: IAB Establishment Panel, 1996-2014.
Following the political discussion on the decreasing collective bargaining
coverage and the expansion of the low wage sector, the new German mini-
mum wage of e8.50 per hour of work was introduced on 1 January 2015. The
o�cial name of the legislation �Tarifautonomiestärkungsgesetz� depicts that
3
the law intends to strengthen industrial relations in Germany. Theoretically,
the minimum wage could in�uence the bargaining over wages and strengthen
the position of unions. This is the case if the minimum wage creates a higher
fall-back position. A higher fall-back a�ects Nash-bargaining outcomes but
also strengthens the employees' position in the right-to-manage model, which
corresponds to the German collective bargaining process.
Many research questions are implied by the relation between industrial re-
lations and the new minimum wage. These include whether the minimum
wage is rather a complementary or a substitutive institution to the industrial
relations in Germany. Other open questions include how the a�ectedness and
anticipatory wage adjustments relate to the coverage by industrial relations.
It is also an open question to what extent establishments reacted with �rm-
level policies already ahead of 1 January 2015 and how industrial relations
relate to such anticipatory adjustments.
The German Council of Economic Experts (�Sachverständigenrat�) already
expected the minimum wage to dampen the economic development in 2014
(Sachverständigenrat 2014). This expectation received a wide public echo
when the German chancellor Angela Merkel expressed her disagreement with
this prediction. However, since the minimum wage legislation followed a
lengthy policy discussion, anticipatory reactions become likely and we shall
see that about 11 per cent of the establishments in our sample reported to
have adjusted wages already a few month ahead of 1 January 2015. We
also look at other potential adjustments and provide �rst evidence on antic-
ipatory policies in response to the minimum wage introduction and propose
several outcomes which are in the scope of industrial relations.
First, we should stress that collective bargaining coverage of establishments
could be a�ected by two opposing mechanisms. On the one hand, establish-
ments may have an incentive to joint collective agreements, because the new
law includes an exemption that existing bargaining agreements are allowed
to undercut the minimum wage until the end of 2016. However, this bene�t
only holds for two years and therefore adjustment costs might exceed the
associated bene�ts. On the other hand, employers may have a tendency to
leave collective bargaining as the minimum wage sets an alternative lower
4
limit on wages and makes the bargaining over wages in such a�ected wage
groups redundant.
Our second scope is on adjustments concerning working time arrangements
such as overtime hours and working time accounts. The possibility of over-
time work may be introduced to increase the �exibility of the given labor
inputs. Working time accounts are also an instrument for the �exible use
of contracted working time, but for both employers and employees. How-
ever, working time accounts may also be introduced to track the employees'
working time, which is a way to check compliance to the minimum wage
legislation in a world where wages are paid in monthly pay checks.
Finally, we analyze adjustments in the provision of further training. This
is of particular interest since classical economic theory predicts wages to be
determined by the value of marginal product. Establishments may therefore
have an incentive to provide further training as an instrument to increase
the productivity of the respective workers which in turn could justify the
minimum wage.
The article is structured as follows: Section 2 describes the data source and
the sample for the analysis. Section 3 shows how the a�ectedness of es-
tablishments di�ers for those with collective bargaining and works council.
Section 4 presents results on the relation between anticipatory wage setting
and industrial relations. Section 5 evaluates other anticipatory reactions
ahead of the minimum wage introduction which include bargaining cover-
age, working time arrangements, and the provision of further training. In
Section 6, we present some robustness checks including the estimation of
non-linear speci�cations and alternate de�nitions of the treatment group.
Section 7 concludes.
2 Data
The data source of the analysis is the IAB Establishment Panel, which is a
large annual survey on general �rm policies and personnel developments in
Germany. The IAB Establishment Panel includes about 15,000 observations
each year since 1993. The survey's gross population units are all establish-
5
ments located in Germany with at least one employee liable to social security.
The sample selection is representative for German states (�Bundesländer�),
industries, and establishment size. The interviews are conducted face-to-
face by professional interviewers, which ensures a high data quality and a
response rate of, on average 83 per cent. More comprehensive data descrip-
tions of the IAB Establishment Panel can be found in Ellguth et al. (2014)
or Fischer et al. (2009).
The 2014 cross-section of the IAB Establishment Panel contains informa-
tion on the establishments' a�ectedness by the minimum wage. The survey
includes information on the extensive a�ectedness by asking whether the re-
spective establishment has employees with an hourly wage below e8.50. But
it also includes information on the intensive margin counting the number of
currently a�ected employees with an hourly wage below e8.50. Finally, the
survey asks establishments whether wages were already adjusted within the
past 12 month, and hence, in anticipation of the minimum wage introduc-
tion.1
An unique establishment identi�er allows tracking establishments over time
if the respective establishments continue to participate in the survey. For
research questions addressing anticipatory reactions relative to 2013, the es-
tablishment identi�er allows to trace back establishments while using the
2014 a�ectedness by the minimum wage.
The descriptive statistics in Table 1 present a �rst snapshot of the analysis
sample comprising of all private sector establishments in 2014. We observe
9,321 establishments, of which 1,582 are a�ected by the minimum wage (ex-
tensive margin) and 1,019 establishments report to have already adjusted
wages in anticipation of the legislation. Within a�ected establishments the
intensive margin of a�ected employees is on average 39 per cent.
Looking at the coverage by industrial relations, 39 per cent of all establish-
ments have a works council and 32 per cent participate in collective bargain-
ing. Additionally, another 23 per cent of establishments reports an orien-
1The question on anticipatory wage setting covers the time period between the German
general election in fall 2013 and the period of the survey, which was conducted from June
to September 2014.
6
tation at existing bargaining agreements without an explicit commitment.
Similarly, the incidence of over-time hours, the use of working time accounts,
and the provision of further training are well represented in the data.
When looking at anticipatory adjustments with respect to collective bar-
gaining coverage, overtime hours, working time arrangements, and further
training, we trace back the 9,321 establishments in the data and compare
these hypothesized workplace policies with the previous year, which is 2013.
In this year we do not expect an anticipatory behavior.
3 A�ectedness by the minimum wage
Before analyzing anticipatory behavior in response to the minimum wage, we
assess the a�ectedness of establishments. The a�ectedness is an important
concept as it di�erentiates a treated group of establishments from a unaf-
fected control group. It also gives an insight to what extent the minimum
wage is binding. We expect that a�ected establishments react in response to
the minimum wage since they have to adjust wages to comply with the law,
but they may also adjust other establishment-level measures to cope with
the increased wage costs. We also expect that establishments are more likely
to react to the minimum wage if a relevant fraction of employees is a�ected
within these establishments.
Most of the existing empirical evidence on the a�ectedness by the new min-
imum wage in Germany is based on employee data. Brenke and Müller
(2013), Kalina and Weinkopf (2013), Heumer et al. (2013), Falck et al.
(2013) and Knabe et al. (2014) predict the individual a�ectedness from pre-
vious waves of the Socio-Economic Panel 2012 to simulate potential e�ects
on employment. Their results reveal a higher a�ectedness in the Eastern
states compared with the West. The a�ectedness of employees in the East
is between 20 per cent according to the study of Knabe et al. (2014) and 32
per cent according to the studies conducted by Kalina and Weinkopf (2013)
and Heumer et al. (2013). By contrast, in West Germany between 13 per
cent according to Knabe et al (2014) and 18 per cent according to Kalina
and Weinkopf (2013) are a�ected.
7
The IAB Establishement Panel allows a comprehensive assessment of the
establishment-level a�ectedness. We believe that the establishment level is
particularly relevant in this respect since the increased wage costs are faced
by employers. Employers are also the ultimate actor to decide over potential
adjustments in employment. A �rst descriptive overview using the IAB Es-
tablishment Panel is presented in a report by Bellmann et al. (2015). 12 per
cent of all establishments report to employ at least one employee who earned
less than e8.50 per hour. An overlapping 7 per cent of the establishments
reported that they already adjusted wages in anticipation.2 In correspon-
dence with the descriptives in Table 1, they also show a large a�ectedness in
the intensive margin, making reactions to the minimum wage likely.
As we are especially interested in the role of industrial relations, we want
to know whether �rms with works councils and collective bargaining are af-
fected di�erently by the minimum wage. We expect a lower a�ectedness
if a �rm is covered by collective bargaining since such �rms are in general
characterized by higher wages (e.g. Addison et al. 2014). The role of works
councils may be ambivalent. On the one hand, works councils are primarily
representatives of the core work force and less for the marginal work force.
As the latter are a�ected by minimum wage (Falck et al. 2013), we can
expect that works councils have not been a major player in favour of the
minimum wage, especially if employers try to re-allocate the additional costs
by the minimum wage to relatively higher paid employees. On the other
hand, works councils are known to have general positive impacts on pro-
ductivity and wages (Addison et al. 2010, Ellguth et al. 2014, Hübler and
Jirjahn 2003, Müller 2012). In this respect the a�ectedness by the minimum
wage could be lower in establishments with a works council.
Table 2 presents partial e�ects of the establishment-level a�ectedness on in-
dustrial relations from OLS and probit estimations. Within the multivariate
regression models we account for the correlation between the establishments'
a�ectedness by the minimum wage and the sector, regional a�liation as well
as other covariates. This controls for potential selectivity of works councils
2The discrepancy with our descriptive �gure that 11 per cent adjusted wages in an-
ticipation is caused by the exclusion of the public sector.
8
with respect to sectoral and regional a�liation as well as establishment size.
The �rst two columns show negative and signi�cant partial e�ects of bar-
gaining, orientation at collective bargaining, and the existence of a works
council. The columns three and four add anticipating establishments3 to the
group of a�ected �rms. Anticipating establishments either have originally
been a�ected or are indirectly a�ected and therefore should be added to the
group of a�ected establishments.4 The results in columns three and four
remain unchanged. The industrial relations still show signi�cant negative
conditional correlations with the a�ectedness by the minimum wage.
Our interpretation is that unions are known to push for higher wages in the
bargaining process and also works councils are known to have an impact on
productivity and wages. These are potential reasons why the minimum wage
a�ectedness of such establishments is relatively lower.
In Table 3, the dependent variable di�erentiates a�ected establishments by
their proportion of a�ected employees. The OLS and fractional probit esti-
mations reveal highly signi�cant and negative partial e�ects. Again, these
partial e�ects are estimated controlling for a large set of potentially con-
founding variables. Thus, our hypothesis of a negative e�ect of unions rep-
resentation through both collective bargaining and works councils is corrob-
orated.
4 Anticipatory wage adjustments
11 per cent of the establishments in our sample report to have adjusted wages
ahead of the minimum wage introduction - see Table 1. But how does this
behavior relate to the existence of works councils and collective bargaining
coverage?
Although works councils have no direct in�uence on wages, previous research
mostly con�rmed a positive e�ect (Addison et al. 2010, Hübler and Jirjahn
2003). This could explain why works councils also press for wage adjust-
3Based on the question whether the establishments have adjusted wages in anticipation
of the minimum wage.4For the remainder of the analyses this is how we de�ne the treatment group. Robust-
ness check towards this de�nition are presented in Section 6.1.
9
ments in anticipation of the minimum wage. They may also monitor the
minimum wage introduction at their respective workplaces and should be
interested in a quick compliance after the minimum wage introduction was
announced.
We would also expect a positive e�ect of collective bargaining on anticipa-
tory wage adjustments. This is especially the case if an establishment or an
industry has entered a new wage agreement in 2014, because unions would
insist that such new wage agreements do not fall below e8.50. However, col-
lectively bargained wages could also make use of the respective clause in the
minimum wage law that adjustments can be postponed until 31 December
2016 and therefore a reversed e�ect is possible.
Finally, there might be a reputation aspect to the discussion on anticipatory
wage adjustments. Establishments for which collective bargaining agree-
ments are binding or which orient themselves to those agreements and/or
establishments with a works council might regard these institutions to signal
a fair employer. This reputation as a fair employer could be endangered if
they wait until the last possible point in time before adjusting wages. It
is a much better signal to accomplish to the new legislation �voluntarily�.
However, the converse situation is also possible: Establishments without
works councils and without binding tari� agreements might have the need
to demonstrate that they act as fair employers. By increasing wages in an-
ticipation they could show a commitment towards higher wages and that
works councils and collective bargaining are not required to set fair wages.
The OLS and probit estimates of the e�ects of the industrial relation vari-
ables on anticipatory behavior are presented in Table 4. The e�ects of the
existence of works councils are negative but small and not signi�cant. Thus,
the hypothesis that union representation through works councils leads to
anticipatory wage adjustment is not approved. However, it remains open
whether this can be driven by establishments without works councils, which
may have an incentive to adjust wages early themselves. This could be
the case if such establishments without works council are confronted with a
higher adjustment volume, of which the costs can be reduced by spreading
the adjustment over time. Moreover, these establishments could be inter-
10
ested to demonstrate that they can be regarded as fair employers - even
without a works council.
The results di�er for collective bargaining coverage. The e�ects of collective
bargaining and orientation at collective bargaining are highly signi�cant and
positive. This contradicts the possibility to delay wage adjustments for col-
lectively bargained wages until 31 December 2016.
Since we �nd a low a�ectedness and anticipatory wage adjustments at �rms
with collective bargaining, this is a clear indication that collective bargaining
has an impact on the lower part of the wage distribution. This corresponds to
fact that collective bargaining is observed across di�erent sectors, including
high-wage as well as low-wage industries (cf. Bispinck 2015).
5 Further anticipatory adjustments
While investigations on minimum wages are usually focussed on the wage
distribution and employment e�ects for a period after the installation of
minimum wages (e.g. Brown 1999, Card/Krueger 1995, Neumark/Wascher
2007), other adjustments and moreover adjustments ahead of the minimum
wage introduction are possible. Such reactions in anticipation of the intro-
duction, which are usually not detected are in the focus of the remaining
analyses.
Although the German Chancellor Angela Merkel was critical towards the
expectation that the minimum wage could dampen the economic activity
before the law came into force, our investigations show that anticipatory ad-
justments are a real phenomenon. A�ected �rms have not only conducted
wage adjustments as described in the last section. Further reactions are
plausible as employers seek for possibilities to balance the additional costs
of minimum wages and aspire strategies to escape the e�ects of a minimum
wage. The e�ects of minimum wages on the internal operation of �rms has
been left as a mostly unexamined black box even though the costs of mini-
mum wages are absorbed through a wide range of channels of adjustments
(Hirsch et al. 2015). In the public discussion in Germany, the reduction
of voluntary social bene�ts, higher work intensity by higher planned perfor-
11
mance or other measures like further training, the substitution of time wage
by piece wage, more unpaid overtime hours and transformation of dependent
employment into pseudo self-employed activities were stressed as potential
measures. Pro�t sharing instead of exclusive wage payments, wage cuts of
higher paid employees and adoption of company-level pacts in combination
with collective opening clauses are further imaginable adjustments. In the
latter case, �rms have the chance to cut the wages below collective agree-
ments. The legislation is not conclusive in this aspect (Mindestlohngesetz
2014).
While many anticipatory reactions ahead of the minimum wage were possi-
ble, we concentrate on three questions, namely, whether establishments have
adjusted their collective bargaining coverage, working time arrangement and
further training. Before we present the empirical results, some hypotheses
to the expected e�ects are shortly discussed.
5.1 Hypotheses about anticipatory adjustments
We expect that the e�ects of the minimum wage announcement on reactions
to these three items di�er both between �rms with and without a works coun-
cil, and with and without collective bargaining agreement. Furthermore, the
in�uence in �rms that are characterized by both works council and collective
bargaining agreement should be di�erent. We follow this idea from another
context. In the discussion about e�ects on wages and labor productivity, the
literature detected di�erences with respect to works councils and collective
bargaining (Hübler/Jirjahn 2003, Gerlach/Meyer 2010).
From a theoretical perspective, an increasing and decreasing tari� commit-
ment - our �rst hypothesis - is possible when an establishment is a�ected
by the minimum wage. The minimum wage legislation allows an exemp-
tion from the e8.50 rule, namely existing bargaining agreements with wages
below the threshold do not need to be changed. This may have been an
incentive for some �rms to adopt collective bargaining ahead to the mini-
mum wage introduction. As this bene�t for �rms only holds for two years
the opposite e�ect may be dominant. Firms that pay low wages may have a
12
preference to leave collective bargaining as the minimum wage makes wage
bargaining for such wage groups redundant. Firms with a works council and
collective bargaining could be less interested to leave the bargaining cover-
age. They pay lower wages than �rms with a works council but not covered
by collective bargaining (Hübler/Jirjahn 2003, p.478). There could also be a
reverse e�ect whereby collective bargaining strengthens the e�ectiveness of
performance-enhancing work practices from negotiations between the man-
agement and the works council (Jirjahn 2014).
Our second hypothesis of possible anticipatory adjustments addresses work-
ing time arrangements and has two dimensions. First, the working hours
per week can be extended or reduced. E. g. Stewart and Swa�eld (2008)
�nd that the introduction of the minimum wage reduced the basic hours of
low-wage workers by about one to two hours per week in the UK. Second, the
use of working time accounts can be changed in reaction to the announced
minimum wage. Here, we have to take into consideration that existing work-
ing time accounts can delay the date up to one year that the minimum wage
is e�ective (Mindestlohngesetz 2014, �2). This delay is in favor of the main-
tenance or introduction of working time accounts before the minimum wage
is enforced. We expect an increased use of overtime work if these additional
hours are unpaid or in combination with working time accounts when no
overtime premium has to be paid. Of course, works councils try to avoid
these disadvantages for the employees. Paid overtime is better practicable
under the control of works councils. Otherwise employees are reluctant to
work more than the bargained working time. They fear that the employer is
unfair at the implementation and arrangement of overtime.
Our third anticipatory adjustment hypothesis looks at whether �rms attempt
to circumvent the cost increases of the minimum wage by a higher produc-
tivity. This could justify the minimum wage economically when wages corre-
spond to the marginal productivity. This higher productivity can be achieved
by a higher planned performance or by further training if this causes no ad-
ditional wage increases. No information on planned performance is available
in our data set. Therefore, we restrict the analysis to further training and
analyze whether a�ected establishments intensi�ed further training activities
13
ahead of the minimum wage introduction on 1 January 2015. The investi-
gation is not restricted to a�ected employees because we cannot split our
sample in this respect. However, it makes sense also to consider una�ected
employees as the wage costs of a�ected workers can also be compensated by
a higher productivity of other workers. From the literature it is known that
further training is more prevalent at �rms with a works council (Backes-
Gellner et al. 1997, Stegmeier 2012, Kriechel et al. 2014). Hence, one can
expect that this is also a crucial factor for the �rms' behavior in response to
the minimum wage also because works councils are known to raise produc-
tivity (Hübler 2015).
5.2 Empirical approach
For the empirical investigations of anticipatory adjustments with respect to
the minimum wage introduction we make use of the panel structure of two
time periods (t=2014; t-1=2013) and estimate for establishments i=1,...,N
∆yi = Aiδ + ∆x′iβ + ∆εi, (1)
where
Ai =
{1 if i would be a�ected by minimum wage in 2014
0 otherwise.
In equation (1), yi is the outcome variable of interest, A de�nes the broad
de�nition of a�ected establishments, including those who reported to have
adjusted wages in anticipation. δ is the e�ect of interest describing whether
a�ected establishments changed outcome y in anticipation of the minimum
wage, x includes a wide range of control variables. They are measured by
∆xi = xit − xi,t−1. Analogously, the error term is determined by ∆εi =
εit − εi,t−1, so that the time invariant establishment component is elimi-
nated. This is not a before and after regression model.5
The speci�cation in �rst di�erences comes at several advantages. First, it
5In a standard before-and-after regression model ∆Ai would be used instead of Ai,
because in 2013 most of the �rms also had employees with wages below e8.50.
14
corresponds with our intuition to analyze changes in y. Second, it controls
for a �xed establishment-speci�c e�ect based on a balanced panel, which
both ensures that changes in y are in fact caused by changes in economic
behavior but not in the sample composition. Third, it requires only a short
panel of two periods which deals with attrition in the survey. Nevertheless,
we conduct placebo regressions to assess whether the results re�ect a general
underlying trend in the outcome variable. Fourth, it allows for simple statis-
tical inference because only one error component per establishment remains
in the estimation.
5.3 Results
5.3.1 Commitment to the collective bargaining agreement
Our estimates in Table 5 show that establishments a�ected by the new Ger-
man minimum wage tend to leave the bargaining coverage (BC=1, if cover-
age; BC=0 otherwise). The endogenous variable is the change of a dummy
(∆BC), which is a classi�ed variable on three levels
∆BCi =
−1 if i leaves BC = 1 from 2013 to 2014
0 if i does not change the BC status
+1 if i enters the status BC = 1 in 2014.
(2)
The results in Table 5 reveal a weakly signi�cant e�ect. This is the case in
the simple two variable model but also when control variables are incorpo-
rated. This supports the hypothesis of the substitution of coverage by the
minimum wage. We cannot rule out that some �rms react in an opposite
manner, i.e., that they join collective bargaining. Another explanation could
be that the reaction will be intensi�ed when the minimum wage is already
adopted. This is because the opposite force, that bargaining agreements are
allowed to undercut minimum wages until 31 December 2016, becomes less
e�ective and the incentive to abuse this exemptions becomes less attractive.
One could argue that the negative coe�cient expresses a general tendency
of shrinking coverage. In order to test this we have made an estimate with
an alternative period, namely, 2012-2013 instead of 2013-2014. When the
15
decreasing trend of collective bargaining is crucial, the in�uence of the min-
imum wage a�ectedness should also be e�ective in the placebo regression.
In other words, the apparent anticipation e�ect of a�ected plants would in
fact be a time e�ect. However, we �nd a positive and insigni�cant placebo
e�ect. Further, we should notice that in Table 5 no speci�c works council
e�ect could be detected as columns (4) and (5) demonstrate.
5.3.2 Working time arrangements
The results in Tables 6 and 7 reveal e�ects with respect to anticipatory
working time adjustments ahead of the minimum wage introduction. The
estimates of both considered aspects show in the same direction. A�ected
�rms have a higher probability of overtime work compared with una�ected
�rms and adopt working time accounts in anticipation of the minimum wage.
The latter e�ect accords with the hypothesis in section 5.1 given the speci�c
rules of minimum wages under working time account arrangements. The ef-
fects are signi�cant in the baseline models with and without control variables,
and again, the a�ectedness coe�cient of the placebo regression is insigni�-
cant and has an opposite sign. This might be a hint that �rms attempt to
compensate the prospective higher wage costs by lower overtime premiums.
We should note that �rms without a works council tend to overtime work
and to introduce working time accounts but not those with a works council.
This seems plausible. A works council can hinder non-payment of overtime
premium by working time accounts. This reduces the incentive to introduce
working time accounts as a cost reducing response to the minimum wage.
5.3.3 Further training
In Table 8, the in�uence of a�ectedness (A) on further training (FT ) is esti-
mated, or more precisely, on the change in the provision of further training
(∆FT ). This variable is again speci�ed as a classi�ed variable with three
distinct values as in equation 5.3.1. The results show that a�ectedness (A)
leads to more further training. The intention is obvious. Via training the
labor productivity shall be increased until the value of the marginal product
16
of labor equals the wage. Then the higher wage costs by minimum wage
are optimal given pro�t maximization in a fully competitive market. How-
ever, a low demand for unskilled labor due to the minimum wage may also
create an incentive for the a�ected workers to accumulate human capital
(Cahuc/Michel 1996).
The e�ect in the placebo regression is again insigni�cant. The most interest-
ing and surprising results in Table 8 are in columns (4) and (5). Firms with a
works council do not react with further training while �rms without a works
council extend their training activities when a�ected by the minimum wage.
We would expect the opposite that works councils support training activities
as this is also con�rmed by the empirical investigations. Related to mini-
mum wages works councils might be reluctant if training and in consequence
higher productivity is not combined with an additional wage increase. If
in this respect the training is a managerial intention, �rms without works
councils have better chances to assert such changes.
6 Robustness checks
In what follows we consider two dimensions of robustness checks. First,
the a�ected group is modi�ed. Second, an alternative estimation method is
applied. We estimate di�erence-in-di�erences probit models instead of the
linear speci�cation and evaluate whether signs and size of the coe�cients
alter.
6.1 Alternative de�nitions of the a�ected group
So far, the a�ected group consists of establishments that still have employ-
ees with a wage below e8.50 per hour of work and establishments that have
adjusted wages in response to the announced minimum wage legislation. A
priori, it is not clear, whether both groups behave in the same way. It is
possible that establishments, which have adjusted wages, do not react with
adjustments in the other hypothesized measures. Unions, works councils
and employees may have ensured that wage adjustments were anticipated
17
and that other detrimental adjustments to the workers are hindered.
We carry out the same estimations as in columns (2) of Tables 5-8 with two
di�erent de�nitions of a�ected �rms. The �rst group only consists of �rms
which paid wages of less than e8.50 in 2014, without adding anticipating
plants. The second group excludes all establishments that adjusted wages
in anticipation. The results are presented in Table 9. We �nd robust results
with respect to the sign of the coe�cients for both alternative de�nitions
compared with columns (2) in Tables 5-8. However, the signi�cance varies.
Especially when using the second alternative de�nition, the estimates be-
come less signi�cant except for the adjustments concerning working time
accounts. The relatively smaller sample size might be one reason. However,
the hypothesis that �rms with anticipating wage adjustments do not show
further anticipatory adjustments is not con�rmed.
6.2 Non-linear di�erence-in-di�erences speci�cations
The di�erence-in-di�erences method (DiD) is a popular approach in empir-
ical economics for estimating causal e�ects that can easily be determined
(Lechner 2011). E.g. Card and Krueger (1994) have applied this in the
context of minimum wages. As in equation (1) time invariant in�uences are
eliminated. For panel data DiD and �xed e�ects estimators are very similar
and under speci�c assumptions even identical. Due to the non-linear nature
of the dependent variables it is not e�cient to use a linear approach as we
have done in Tables 5-9. The endogenous variables are dummy variables.
The corresponding nonlinear di�erence-in-di�erences model of a two-period
speci�cation is
yit = G(x′it · β + Ai · β1 + Y 2014 · β2 + Ai · Y 2014 · δ), (3)
where i = 1, ..., N , t = 2013, 2014 and
Y 2014 =
{1 if observation stems from the year 2014
0 otherwise.
18
This means, the dependent variable yit is a nonlinear function G(·) of the
index of independent variables. The marginal e�ects of the interaction term
are computed following Norton, Wang and Ai (2004) by
∆2G(·)∆Ai · ∆Y 2014
= Φ(x′β+β1+β2+δ)−Φ(x′β+β1)−Φ(x′β+β2)+Φ(x′β). (4)
For the probit case, Φ(·) is the standard normal cumulative distribution.
Clustered standard errors are determined by a block clustered bootstrap pro-
cedure. The estimates are presented in Table 10, where only the coe�cient
and the standard error of the interaction term are displayed. In comparison
with Tables 5-8 the results are robust.
7 Conclusion
The introduction of a general minimum wage in Germany since 1 January
2015 is a large-scale experiment with uncertain outcomes. It was announced
by the government in October 2013. Among other things, the law was mo-
tivated by the declining industrial relation coverage in Germany. Minimum
wages can be regarded as a wage increasing instrument like collective bar-
gaining and wage councils. But it is not clear whether minimum wages cause
di�erent or additional intra-�rm adjustments. Despite the necessity for ex-
post evaluations of employment and wage e�ects of the minimum wage, an-
ticipatory adjustments ahead of minimum wages are under-investigated and
addressed in our analysis.
We apply the IAB Establishment Panel, which includes information about
the establishment-level a�ectedness and anticipatory wage adjustments. The
a�ectedness ahead of the minimum wage introduction in Germany varies.
While only 12 per cent of the establishments are a�ected, within these es-
tablishments on average 39 per cent of the employees had a wage of less than
e8.50 per hour of work in 2014. Firms with a works council and collective
bargaining are less a�ected than others. Furthermore, we �nd that compa-
nies with strong industrial relations tend to early wage adjustment prior to
the o�cial start of the minimum wage. Furthermore, �rms a�ected by the
19
minimum wage extend or introduce overtime, adopt working time accounts
and expand further training. In contrast to the anticipatory wage adjust-
ments, establishments with weak industrial relations are mostly responsible
for such adjustments. Together these results corroborate the hypothesis that
a�ected �rms try to compensate the higher wage costs by counteractive mea-
sures.
A priori it was not clear whether industrial relations are strengthened by the
introduction of the minimum wage. Our results rather point at the opposite.
A�ected establishments rather leave than join collective bargaining and the
institutions indicating strong industrial relations do not have a mitigating
impact on the observed anticipatory adjustments with respect to working
time and training.
Further research should be devoted to the reasons for anticipatory behavior:
Our analysis cannot verify whether anticipatory adjustments are due to con-
cerns about the establishment's reputation and also not about the intensity
of the adjustments. While our study shows that anticipatory behavior is as-
sociated to the minimum wage, future research should uncover whether such
changes persist after the introduction of the minimum wage. Furthermore,
it is unclear whether adjustments concerning collective bargaining, working
time arrangements, and further training a�ect potential consequences of the
minimum wages such as e�ects on employment.
20
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Table Appendix
Table 1: Descriptive summary of the analysis sample
(1) (2) (3)All A�ected (A=1) Establishments
establishments establishments with anticipatorywage adjustments
Absolute numbers:Establishments 9,321 1,582 1,019
Means of covariates:Works councils 0.387 0.219 0.476Collective bargaining 0.321 0.348 0.362Orientation at 0.233 0.116 0.275collective bargainingOvertime hours 0.505 0.470 0.578Working time accounts 0.674 0.650 0.790Further training 0.684 0.599 0.813
Observations 9,321Sample year 2014Source: IAB Establishment Panel, analysis sample.
25
Table 2: Partial e�ects of industrial relations on the establishment-levela�ectedness
(1) (2) (3) (4)A�ected establishments A�ected establishments and
anticipating establishmentsOLS Probit OLS Probit
Collective bargaining -0.077*** -0.079*** -0.072*** -0.073***(0.010) (0.010) (0.011) (0.011)
Orientation at bargaining -0.045*** -0.036*** -0.027** -0.023**(0.010) (0.008) (0.010) (0.009)
Works council -0.089*** -0.081*** -0.097*** -0.084***(0.012) (0.012) (0.014) (0.013)
Controls yes yes yes yes
Observations 9,321Sample 2014
Note: Partial e�ects and iid-standard errors in parentheses. Asterisks indicate signi�cance levels: *** 1%, **
5%, and * 10%. Control variables include the shares of females, quali�ed, high quali�ed and part-time employees
as of all employees; dummies for product and process innovations; the self-assessed competition (4 categories);
dummies for skilled labor demand, single establishment-organizations, foundation before 1990, the legal form
(4 categories), association membership, industries (17 categories), states (16 categories), and establishment size
(10 categories).
Source: IAB Establishment Panel, analysis sample.
26
Table 3: Partial e�ects of industrial relations on the fraction of a�ectedemployees
(1) (2)Fraction of a�ected employeesOLS Fractional Probit
Collective bargaining -0.022*** -0.022***(0.005) (0.005)
Orientation at bargaining -0.020*** -0.014***(0.005) (0.004)
Works council -0.032*** -0.043***(0.005) (0.006)
Controls yes yes
Observations 9,321Sample 2014Note: Dependent variable is the fraction of employees with a wage below
e8.50 per hour of work. Robust standard errors in parentheses. Asterisks
indicate signi�cance levels: *** 1%, ** 5%, and * 10%. Control variables as
in Table 2.
Source: IAB Establishment Panel, analysis sample.
27
Table 4: Partial e�ects of industrial relations on anticipatory wage setting
(1) (2)OLS Fractional Probit
Collective bargaining 0.111*** 0.110***(0.031) (0.030)
Orientation at bargaining 0.096*** 0.094***(0.026) (0.025)
Works council -0.018 -0.017(0.038) (0.037)
Controls yes yes
Observations 2,098Sample 2014
Note: Dependent variable indicates establishments which set wages in antic-
ipation of the minimum wage. Robust standard errors in parentheses. Aster-
isks indicate signi�cance levels: *** 1%, ** 5%, and * 10%. Control variables
as in Table 2.
Source: IAB Establishment Panel, analysis sample.
28
Table 5: Anticipatory adjustments in tari� commitment
(1) (2) (3) (4) (5)Baseline Baseline Placebo With Withoutwithout with regression works workscontrols controls council council
A�ected -0.010 -0.011* 0.005 -0.009 -0.010(0.006) (0.006) (0.006) (0.019) (0.007)
Controls no yes yes yes yes
Observations 9,321 9,321 7,721 1,985 7,336Sample 2013-2014 2013-2014 2012-2013 2013-2014 2013-2014
Note: Robust standard errors in parentheses. Asterisks indicate signi�cance levels: *** 1%, ** 5%,
and * 10%. Control variables as in Table 2, but in di�erences (∆x).
Source: IAB Establishment Panel, analysis sample.
29
Table 6: Anticipatory adjustment in overtime hours
(1) (2) (3) (4) (5)Baseline Baseline Placebo With Withoutwithout with regression works workscontrols controls council council
A�ected 0.022** 0.023** -0.009 -0.006 0.025*(0.011) (0.011) (0.012) (0.020) (0.013)
Controls no yes yes yes yes
Observations 9,321 9,321 7,721 1,985 7,336Sample 2013-2014 2013-2014 2012-2013 2013-2014 2013-2014
Note: Robust standard errors in parentheses. Asterisks indicate signi�cance levels: *** 1%, ** 5%,
and * 10%. Control variables as in Table 2, but in di�erences (∆x).
Source: IAB Establishment Panel, analysis sample.
30
Table 7: Anticipatory adjustments in the use of working time accounts
(1) (2) (3) (4) (5)Baseline Baseline Placebo With Withoutwithout with regression works workscontrols controls council council
A�ected 0.018* 0.018* -0.004 0.011 0.025**(0.011) (0.011) (0.012) (0.023) (0.012)
Controls no yes yes yes yes
Observations 9,321 9,321 7,721 1,985 7,336Sample 2013-2014 2013-2014 2012-2013 2013-2014 2013-2014
Note: Robust standard errors in parentheses. Asterisks indicate signi�cance levels: *** 1%, ** 5%,
and * 10%. Control variables as in Table 2, but in di�erences (∆x).
Source: IAB Establishment Panel, analysis sample.
31
Table 8: Anticipatory use of further training
(1) (2) (3) (4) (5)Baseline Baseline Placebo With Withoutwithout with regression works workscontrols controls council council
A�ected 0.019* 0.018* -0.008 -0.031 0.027**(0.011) (0.011) (0.011) (0.020) (0.012)
Controls no yes yes yes yes
Observations 9,321 9,321 7,721 1,985 7,336Sample 2013-2014 2013-2014 2012-2013 2013-2014 2013-2014
Note: Robust standard errors in parentheses. Asterisks indicate signi�cance levels: *** 1%, ** 5%,
and * 10%. Control variables as in Table 2, but in di�erences (∆x).
Source: IAB Establishment Panel, analysis sample.
32
Table 9: Anticipation e�ects using alternative de�nitions pf treated plants
Panel A: Panel B:Tari� commitment Overtime hours
a - A�ected without adding -0.008 0.020*anticipating now una�ected (0.007) (0.012)b - A�ected excluding all -0.010 0.005anticipating establishments (0.008) (0.014)
Panel C: Panel D:Working time accounts Further Training
a - A�ected without adding 0.024** 0.021*anticipating now una�ected (0.012) (0.012)b - A�ected excluding all 0.030** 0.010anticipating establishments (0.013) (0.014)
Observations 8,787 8,302 8,787 8,302Sample 2013-2014
Note: Robust standard errors in parentheses. Asterisks indicate signi�cance levels: *** 1%, ** 5%, and
* 10%. Control variables include the shares of females, quali�ed, high quali�ed and part-time employees
as of all employees; dummies for product and process innovations; the self-assessed competition (4 cat-
egories); dummies for skilled labor demand, single establishment-organizations, foundation before 1990,
the legal form (4 categories), association membership, industries (17 categories), states (16 categories),
and establishment size (10 categories).
Source: IAB Establishment Panel, analysis sample.
33
Table 10: Non-linear interaction e�ects, baseline speci�cation with controls
(1) (2) (3) (4)Tari� Overtime Working time Further
Commitment hours accounts training
A�ected*Y2014 -0.011 0.024** 0.020* 0.018*(0.007) (0.011) (0.011) (0.011)
Observations 18,642 18,642 18,642 18,642Sample 2013-2014 2013-2014 2013-2014 2013-2014
Note: Cluster robust standard errors from a block clustered bootstrap (500 replications) in
parentheses. Asterisks indicate signi�cance levels: *** 1%, ** 5%, and * 10%. Control variables
as in Table 2, but in di�erences (∆x).
Source: IAB Establishment Panel, analysis sample.
34
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