Do Minimum Wages Lead to Job Losses? Evidence from OECD Countries on Low-Skilled and Youth Employment

by: Simon Sturn

April 26, 2016 |
Working Paper

This paper investigates the impact of minimum wages on low-skilled and female low-skilled employment, and reassesses their effect on youth employment. The sample consists of 19 OECD countries from 1997-2013 for low-skilled, and 1983-2013 for young workers. Several different estimation approaches are applied, such as two-way fixed effects, a data-driven approach (LASSO) to pick relevant covariates, an instrumental variable approach to address the potential endogeneity of the minimum wage variable, the dynamic difference and system GMM methods, and a specification in first differences. I present three versions of these estimates, controlling for up to quadratic country-specific time trends. I further investigate long-run effects, institutional complementarities, and whether effects of minimum wages depend on the phase of the business cycle or the level of minimum wages. The findings consistently suggest that there is little evidence for substantial disemployment effects, neither for low-skilled, female low-skilled, nor young workers. The estimated employment elasticities are mostly small, and always statistically indistinguishable from zero. I finally assess why my results on youth employment differ from those of Neumark and Wascher (2004), and show that they overstate precision and that small changes in their specifications lead to minimum wage effects close to zero. I also confirm the absence of significant disemployment effects for a larger sample of 24 countries from 1970-2013.

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