Using Distribution Regression Difference‐in‐Differences to Evaluate the Effects of a Minimum Wage Introduction on the Distributions of Wages, Earnings, and Working Hours

ABSTRACT We estimate the causal effects of the introduction of the minimum wage in Germany on the distributions of hourly wages, monthly earnings, and hours worked, combining rich large‐scale data sources. We compare linear and non‐linear versions of distribution regression difference‐in‐differences (DR‐DiD) and also estimate bivariate DR‐DiD. We show that the introduction of the minimum wage in 2015 led to shifts in low hourly wages around the minimum wage threshold including spillover effects up to 50%–70% above. We present evidence for working hours effects in different parts of the hours distribution, though the magnitudes are small. The minimum wage explains a sizeable share of the recent fall in wage and earnings inequality. We show that groups that were later more strongly affected by the minimum wage already experienced higher wage growth before the introduction, leading to an overestimation of minimum wage effects if not accounted for.