The Minimum Wage Effects on Skilled Crafts Sector in Saxony-Anhalt
Hans-Ulrich Brautzsch, Birgit Schultz
IWH Discussion Papers,
Nr. 31,
2017
Abstract
This paper examines the effects of the minimum wage introduction in Germany in 2015 on the skilled crafts sector in Saxony-Anhalt. Using novel survey data on the skilled crafts sector in Saxony-Anhalt, we examine three questions: (1) How many employees are affected by the minimum wage introduction in the skilled crafts sector in Saxony- Anhalt? (2) What are the effects of the minimum wage introduction? (3) How have firms reacted to wage increase? We find that about 8% of all employees in the skilled crafts sector in Saxony-Anhalt are directly affected by the minimum wage introduction. A difference-in-difference estimation reveals no significant employment effects of the minimum wage introduction. We test for alternative adjustment strategies and observe a significant increase of output prices.
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Employment Effects of Introducing a Minimum Wage: The Case of Germany
Oliver Holtemöller, Felix Pohle
IWH Discussion Papers,
Nr. 28,
2017
Abstract
This paper contributes to the empirical literature on the employment effects of minimum wages. We analysed the introduction of a statutory minimum wage in Germany in 2015 exploiting cross-sectional variation of the minimum wage affectedness. We construct two variables that measure the affectedness for approximately 300 state-industry combinations based on aggregate monthly income data. The estimation strategy consists of two steps. We test for (unidentified) structural breaks in a model with cross-section specific trends to control for state-industry specific developments prior to 2015. In a second step, we test whether the trend deviations are correlated with the minimum wage affectedness. To identify the minimum wage effect on employment, we assume that the minimum wage introduction is exogenous. Our results point towards a negative effect on marginal employment and a positive effect on socially insured employment. Furthermore, we analyse if the increase in socially insured employment is systematically related to the reduction of marginal employment but do not detect evidence.
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Why They Keep Missing: An Empirical Investigation of Rational Inattention of Rating Agencies
Gregor von Schweinitz, Makram El-Shagi
IWH Discussion Papers,
Nr. 1,
2017
Abstract
Sovereign ratings have frequently failed to predict crises. However, the literature has focused on explaining rating levels rather than the timing of rating announcements. We fill this gap by explicitly differentiating between a decision to assess a country and the actual rating decision. Thereby, we account for rational inattention of rating agencies that exists due to costs of reassessment. Exploiting information of rating announcements, we show that (i) the proposed differentiation significantly improves estimation; (ii) rating agencies consider many nonfundamental factors in their reassessment decision; (iii) markets only react to ratings providing new information; (iv) developed countries get preferential treatment.
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The Joint Dynamics of Sovereign Ratings and Government Bond Yields
Makram El-Shagi, Gregor von Schweinitz
Deutsche Bundesbank Discussion Papers,
Nr. 13,
2016
Abstract
Can a negative shock to sovereign ratings invoke a vicious cycle of increasing government bond yields and further downgrades, ultimately pushing a country toward default? The narratives of public and political discussions, as well as of some widely cited papers, suggest this possibility. In this paper, we will investigate the possible existence of such a vicious cycle. We find no evidence of a bad long-run equilibrium and cannot confirm a negative feedback loop leading into default as a transitory state for all but the very worst ratings.
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Censored Fractional Response Model: Estimating Heterogeneous Relative Risk Aversion of European Households
Qizhou Xiong
IWH Discussion Papers,
Nr. 11,
2015
Abstract
This paper estimates relative risk aversion using the observed shares of risky assets and characteristics of households from the Household Finance and Consumption Survey of the European Central Bank. Given that the risky share is a fractional response variable belonging to [0, 1], this paper proposes a censored fractional response estimation method using extremal quantiles to approximate the censoring thresholds. Considering that participation in risky asset markets is costly, I estimate both the heterogeneous relative risk aversion and participation cost using a working sample that includes both risky asset holders and non-risky asset holders by treating the zero risky share as the result of heterogeneous self-censoring. Estimation results show lower participation costs and higher relative risk aversion than what was previously estimated. The estimated median relative risk aversions of eight European countries range from 4.6 to 13.6. However, the results are sensitive to households’ perception of the risky asset market return and volatility.
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Negative Bonitätsbewertungen und Zinsen auf Staatsanleihen – Gibt es einen Teufelskreis?
Makram El-Shagi, Gregor von Schweinitz
Wirtschaft im Wandel,
Nr. 3,
2015
Abstract
Kann es nach einer Herabstufung der Bonität eines Staates zu einer Dynamik von steigenden Zinsen auf Staatsanleihen und weiter fallenden Ratings kommen, die unausweichlich in einem Staatsbankrott endet? Die hohe Persistenz von Ratings sowie die Beobachtung, dass Zinsen häufig negativ auf eine Herabstufung reagieren, legen die Möglichkeit einer solchen Abwärtsspirale nahe. Empirisch ist diese Dynamik allerdings nicht zu sehen. In den Daten ist im Gegenteil ausschließlich eine sehr langsame Annäherung an ein langfristiges Gleichgewicht von guten Ratings und niedrigen Zinsen zu beobachten. Gleichzeitig ist die Persistenz von Ratings allerdings hoch genug, um nach einer Herabstufung auf ein hochspekulatives Niveau (Rating von B oder schlechter) massive und langandauernde Zinsaufschläge zu erzeugen. Da eine solche Herabstufung in der Realität allerdings äußerst selten erfolgt, ist die Existenz des oben beschriebenen Teufelskreises zu verneinen. Eine negative Entwicklung wie zum Beispiel in Griechenland in den Jahren 2010 und 2011 lässt sich nicht als Ergebnis der Wechselwirkung von Ratings und Zinsen erklären.
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The Joint Dynamics of Sovereign Ratings and Government Bond Yields
Makram El-Shagi, Gregor von Schweinitz
IWH Discussion Papers,
Nr. 4,
2015
Abstract
In the present paper, we build a bivariate semiparametric dynamic panel model to repro-duce the joint dynamics of sovereign ratings and government bond yields. While the individual equations resemble Pesaran-type cointegration models, we allow for different long-run relationships in both equations, nonlinearities in the level effect of ratings, and asymmetric effects in changes of ratings and yields. We find that the interest rate equation and the rating equation imply significantly different long-run relationships. While the high persistence in both interest rates and ratings might lead to the misconception that they follow a unit root process, the joint analysis reveals that they converge slowly to a joint equilibrium. While this indicates that there is no vicious cycle driving countries into default, the persistence of ratings is high enough that a rating shock can have substantial costs. Generally, the interest rate adjusts rather quickly to the risk premium that is in line with the rating. For most ratings, this risk premium is only marginal. However, it becomes substantial when ratings are downgraded to highly speculative (a rating of B) or lower. Rating shocks that drive the rating below this threshold can increase the interest rate sharply, and for a long time. Yet, simulation studies based on our estimations show that it is highly improbable that rating agencies can be made responsible for the most dramatic spikes in interest rates.
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Risk and Return - Is there an Unholy Cycle of Ratings and Yields?
Makram El-Shagi, Gregor von Schweinitz
Economics Letters,
2015
Abstract
After every major financial crisis, the question about the responsibility of the rating agencies resurfaces. Regarding government bonds, the most frequently voiced concern targeted “unreasonably” bad ratings that might trigger capital flights and increasing risk premia which sanction further rating downgrades. In this paper we develop a multivariate, nonparametric version of the Pesaran type cointegration model that allows for nonlinearities, to show that a unique equilibrium between ratings and sovereign yields exists. Therefore, we have to reject the concern that there is an unholy cycle leading to certain default in the long run.
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