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Happy Birthday, You're Fired! The Effects of Age-Dependent Minimum Wage on Youth Employment Flows in the Netherlands

Listed author(s):
  • Kabátek, Jan

    ()

    (University of Melbourne)

This paper investigates the effects of the age-dependent minimum wage on youth employment flows in the Netherlands. The Dutch minimum wage for workers aged 15-23 is defined as a step-wise increasing function of a worker's calendar age. At the age of 23, workers become eligible for the "adult" minimum wage which does not increase further. This creates an incentive for firms to discriminate against employees on the basis of their age, substituting more expensive older workers with younger ones. In order to grasp the size of these effects, I analyze monthly flows in and out of employment using administrative records for the entire youth population of the Netherlands. I account for the time remaining until workers' next birthdays, exploiting the fact that firms are facing a sharp discontinuity in labor costs in the month when a worker turns one year older. The results show a significant increase in job separation around the time of this discontinuity: the probability of job separation increases by 1.1% in the three calendar months which are closest to a worker's next birthday. This effect exhibits substantial heterogeneity with respect to a worker's age, showing that young and inexperienced workers are more likely to be affected by the discontinuities. The size of the effect also varies by the sector of employment, being particularly large for supermarket employees. Job accession peaks just after workers' birthdays, representing both entry of the workers with higher reservation wages and re-employment of the workers whose jobs are dissolved around the time of the discontinuity.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 9528.

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Length: 30 pages
Date of creation: Nov 2015
Handle: RePEc:iza:izadps:dp9528
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  1. Laura Giuliano, 2013. "Minimum Wage Effects on Employment, Substitution, and the Teenage Labor Supply: Evidence from Personnel Data," Journal of Labor Economics, University of Chicago Press, vol. 31(1), pages 155-194.
  2. David Card & Alan B. Krueger, 1993. "Minimum Wages and Employment: A Case Study of the Fast Food Industry in New Jersey and Pennsylvania," Working Papers 694, Princeton University, Department of Economics, Industrial Relations Section..
  3. Richard Blundell & Antoine Bozio & Guy Laroque, 2013. "Extensive and Intensive Margins of Labour Supply: Work and Working Hours in the US, the UK and France," Fiscal Studies, Institute for Fiscal Studies, vol. 34(1), pages 1-29, 03.
  4. David Neumark & William Wascher, 2004. "Minimum Wages, Labor Market Institutions, and Youth Employment: A Cross-National Analysis," ILR Review, Cornell University, ILR School, vol. 57(2), pages 223-248, January.
  5. Richard Dickens & Rebecca Riley & David Wilkinson, 2014. "The UK minimum wage at 22 years of age: a regression discontinuity approach," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 177(1), pages 95-114, 01.
  6. Jan Fidrmuc & J. D. Tena, 2013. "National Minimum Wage and Employment of Young Workers in the UK," CESifo Working Paper Series 4286, CESifo Group Munich.
  7. Richard Dickens & Rebecca Riley & David Wilkinson, 2011. "The UK Minimum Wage at Age 22: A Regression Discontinuity Approach," Working Paper Series 2111, Department of Economics, University of Sussex.
  8. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
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