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Teen employment, poverty, and the minimum wage: Evidence from Canada

  • Sen, Anindya
  • Rybczynski, Kathleen
  • Van De Waal, Corey

In May 2007, the U.S. Congress enacted legislation, which increased the Federal minimum hourly wage from $5.15 to $7.25, over a two year time period. This increase to the minimum wage was the first in nearly a decade and was approved with the objective of alleviating poverty among low-income households. However, a higher minimum wage may result in more unemployment and poverty. We exploit time-series variation in minimum wages set by Canadian provinces between 1981 and 2004. OLS and IV results suggest that a 10% increase in the minimum wage is significantly correlated with a 3%-5% drop in teen employment. Further, a 10% rise in the minimum wage is also significantly associated with a 4%-6% increase in the percentage of families living under Low Income Cut Offs (LICOs). Difference-in-difference estimates from the 1993, 1995, and 1998 waves of the Survey of Consumer Finances (SCF) support these findings as they suggest that income earned by teens constitutes a non-trivial portion of household income for families beneath Low Income Cut Offs. Therefore, a higher minimum wage may paradoxically result in a significant negative shock to household income among low-income families.

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Article provided by Elsevier in its journal Labour Economics.

Volume (Year): 18 (2011)
Issue (Month): 1 (January)
Pages: 36-47

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Handle: RePEc:eee:labeco:v:18:y:2011:i:1:p:36-47
Contact details of provider: Web page: http://www.elsevier.com/locate/labeco

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