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The short-term impact of the minimum wage on employment: Evidence from Spain

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  • Pablo Fernández-Baldor Laporta

Abstract

Minimum wages have been widely discussed in the literature. The mínimum wage impact on employment strongly depends on labor market concentration and the point at which it is located in the income distribution. Therefore, its study essentially involves exploring whether it has been set too far, beyond the competitive market wage. In 2019, the Spanish government decided to raise the minimum wage by 22.3%. This increase is of a previously unseen magnitude. Using rich administrative data, we combine Propensity Score Matching and a Difference-in-Differences model to evaluate the short-run employment effect of this policy. We find that the reform increased the probability of job loss within a range of 0.38 pp. (7.8%) and 0.44 pp. (9.2%) for workers below the new minimum wage, which implies an employment elasticity between 0.3 and 0.4. In addition, our results suggest that the bulk of this effect is concentrated in the group of workers furthest from the new minimum wage. This is the segment of the income distribution that bore the bulk of the employment costs of the minimum wage increase.

Suggested Citation

  • Pablo Fernández-Baldor Laporta, 2022. "The short-term impact of the minimum wage on employment: Evidence from Spain," Working Papers 2022/06, Institut d'Economia de Barcelona (IEB).
    • Handle: RePEc:ieb:wpaper:doc2022-06
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    File URL: https://ieb.ub.edu/en/publication/2022-06-the-short-term-impact-of-the-minimum-wage-on-employment-evidence-from-spain/
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    More about this item

    Keywords

    Minimum Wage; Employment; Job Loss; Propensity Score Matching; Difference-in-Differences;
    All these keywords.

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets

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