Minimum Wages as a Barrier to Entry

This study analyses employers‘ support for the introduction of industry-specifi c minimum wages as a cost-raising strategy in order to deter market entry. Using a unique data set consisting of 800 fi rms in the German service sector, we fi nd some evidence that high-productivity employers support minimum wages. We further show that minimum wage support is higher in industries and regions with low barriers to entry. This is particularly the case in East Germany, where the perceived threat of low-wage competition from Central and Eastern European countries is relatively high. In addition, fi rms paying collectively agreed wages are more strongly in favour of minimum wages if union coverage is low and the mark-up of union wage rates is high. JEL Classifi cation: J38, J50, L41, L80