An Analysis of Teenage Employment by Firms: 1999/00–2006/07

Changes to youth minimum wage legislation in New Zealand together with steady increases in minimum wages since 2001 have contributed to substantial increases in the minimum wages for teenage workers, and significant increases in the number of teen workers earning at or near minimum wages. With these changes as a backdrop, this paper uses data from Statistics New Zealand’s Linked Employer-Employee Database (LEED) to document the pattern of firm-level teenage employment over the period 2000–2007, and analyse the responses of firms to the increasing relative wages of teen workers. First, we describe the distribution of teen-employment across firms and industries, and assess the possible impacts of the minimum wage changes on firms’ wage bills. The average teen-employment share across all firms is about 7–8 percent, and about twice that in four main teen-employing industries. The minimum wage increases for teenagers plausibly increased their average wage by 5–10 percent relative to adult workers, although the effect on typical firms’ wage bills is likely to be small: about 0.5 percent on average and about 1.5 percent for firms in the main teen-employing industries. However, there is a significant fraction of high teen-employing firms where, in the absence of any employment response by firms, the average impact of such wage increases could be about 5 percent. Second, we analyse the changing nature of teen employment within continuing firms, focusing on whether firms that had high levels of teen employment before the changes in teenage minimum wages changed their teen-employment patterns relative to other firms. We find mixed evidence on whether high initial teen-employment shares reduced their teen employment over the period. Analysing changes over the period as a whole, we estimate that initial high teen-employing firms tended to reduce their subsequent teen employment: by 2.5–3 percentage points for firms in the main teen-employing industries, and about 1.2 percentage points for firms in other industries. However, analysing annual changes, we estimate small and insignificant effects for firms in the main teen-employing industries and positive effects for firms in other industries. Third, we analyse the relationship between teen employment and firm entry and exit over the period. We find preliminary evidence of adverse effects on survival for firms that had high levels of teen employment at the beginning of the period. We estimate that firms in the main (other) teen-employing industries with initial teen-employment shares greater than 0.3, had about a 3 percent (10 percent) lower survival rate than other firms. We also estimate that firms entering the main teen-employing industries during the period had about 2 percent higher teen-employment shares in the final year of the period than continuing firms. These findings highlight the potentially important role played by firm entry and exit in accounting for changes in the teenage labour market. However, it is unclear whether the patterns associated with exit and entry are due to increasing teenage wages over the period, or a reflection of characteristics associated with the dynamics of firm entry and exit.