Minimum Wages: Do They Really Hurt Young People?

In: The B.E. journal of economic analysis & policy, Band 15, Heft 1, S. 299-328

Abstract

Abstract
This paper uses a significant increase in the minimum wage in Spain between 2004 and 2010 as a case study to analyse the effects on the individual probability of losing employment, using a large panel of social security records. We show that this individual approach is important, as the possible effects for different types of individuals may differ from other estimates in the literature, based on aggregate or firm-level data, hence complementing them. Our main finding is that older people experienced the largest increase in the probability of losing their job, when compared with other age groups, including young people. The intuition is simple: among the affected (low-productivity) workers, young people are expected to increase their productivity more than older ones, who are in the flat part of their life-cycle productivity curve. Consequently, an employer facing a uniform increase in the minimum wage may find it profitable to retain young employees and to fire older ones.