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Youth Minimum Wage Reform and the Labour Market

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Abstract

This paper analyses the effects of a large reform in the minimum wages affecting youth workers in New Zealand since 2001. Prior to this reform, a youth minimum wage, applying to 16-19 year-olds, was set at 60% of the adult minimum. The reform had two components. First, it lowered the eligible age for the adult minimum wage from 20 to 18 years, and resulted in a 69 percent increase in the minimum wage for 18 and 19 year- olds. Second, the reform raised the youth minimum wage in two annual steps from 60% to 80% of the adult minimum, and resulted in a 41 percent increase in the minimum wage for 16 and 17 year-olds over a two-year period. We use data from the New Zealand Household Labour Force Survey (HLFS) to estimate the impact of these changes on a variety of labour market and related outcomes. We compare the average outcomes of these two groups of teenagers, before and after the policy reform, to those of 20-25 year- olds, who were unaffected by the reform. We find no robust evidence of adverse effects on youth employment or hours worked. In fact, we find stronger evidence of positive employment responses to the changes for both groups of teenagers, and that 16-17 year-olds increased their hours worked by 10-15 percent following the minimum wage changes. Given the absence of any adverse employment effects, we find significant increases in labour earnings and total income of teenagers relative to young adults. However, we do find some evidence of a decline in educational enrolment, and an increase in unemployment and inactivity, although these results depend on the specification adopted.

Suggested Citation

  • Dean Hyslop & Steven Stillman, 2004. "Youth Minimum Wage Reform and the Labour Market," Treasury Working Paper Series 04/03, New Zealand Treasury.
  • Handle: RePEc:nzt:nztwps:04/03
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    File URL: https://treasury.govt.nz/sites/default/files/2007-09/twp04-03.pdf
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    1. John M. Abowd & Francis Kramarz & Thomas Lemieux & David N. Margolis, 2000. "Minimum Wages and Youth Employment in France and the United States," NBER Chapters,in: Youth Employment and Joblessness in Advanced Countries, pages 427-472 National Bureau of Economic Research, Inc.
    2. Card, David & Krueger, Alan B, 1994. "Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania," American Economic Review, American Economic Association, vol. 84(4), pages 772-793, September.
    3. Pedro Portugal & Ana Rute Cardoso, 2006. "Disentangling the Minimum Wage Puzzle: An Analysis of Worker Accessions and Separations," Journal of the European Economic Association, MIT Press, vol. 4(5), pages 988-1013, September.
    4. Neumark, David & Wascher, William, 1995. "Minimum Wage Effects on Employment and School Enrollment," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(2), pages 199-206, April.
    5. Philippe Van Kerm, 2003. "Adaptive kernel density estimation," Stata Journal, StataCorp LP, vol. 3(2), pages 148-156, June.
    6. Alan B. Krueger & David Card, 2000. "Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania: Reply," American Economic Review, American Economic Association, vol. 90(5), pages 1397-1420, December.
    7. Janet Currie & Bruce C. Fallick, 1996. "The Minimum Wage and the Employment of Youth Evidence from the NLSY," Journal of Human Resources, University of Wisconsin Press, vol. 31(2), pages 404-428.
    8. Brown, Charles & Gilroy, Curtis & Kohen, Andrew, 1982. "The Effect of the Minimum Wage on Employment and Unemployment," Journal of Economic Literature, American Economic Association, vol. 20(2), pages 487-528, June.
    9. William Wascher & David Neumark, 2000. "Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania: Comment," American Economic Review, American Economic Association, vol. 90(5), pages 1362-1396, December.
    10. Dickens, Richard & Machin, Stephen & Manning, Alan, 1999. "The Effects of Minimum Wages on Employment: Theory and Evidence from Britain," Journal of Labor Economics, University of Chicago Press, vol. 17(1), pages 1-22, January.
    11. Bell, David N.F. & Blanchflower, David G., 2011. "Youth Unemployment in Europe and the United States," IZA Discussion Papers 5673, Institute for the Study of Labor (IZA).
    12. Burkhauser, Richard V & Couch, Kenneth A & Wittenburg, David C, 2000. "A Reassessment of the New Economics of the Minimum Wage Literature with Monthly Data from the Current Population Survey," Journal of Labor Economics, University of Chicago Press, vol. 18(4), pages 653-680, October.
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    Cited by:

    1. David Neumark & William Wascher, 2006. "Minimum Wages and Employment: A Review of Evidence from the New Minimum Wage Research," NBER Working Papers 12663, National Bureau of Economic Research, Inc.
    2. repec:ilo:ilowps:467687 is not listed on IDEAS
    3. Rice, Patricia, 2010. "Minimum wages and schooling: evidence from the UK's introduction of a national minimum wage," LSE Research Online Documents on Economics 33515, London School of Economics and Political Science, LSE Library.
    4. repec:ilo:ilowps:486283 is not listed on IDEAS
    5. Tim Maloney & Gail Pacheco, 2012. "Assessing the Possible Antipoverty Effects of Recent Rises in Age-Specific Minimum Wages in New Zealand," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 58(4), pages 648-674, December.
    6. Grimshaw, Damian., 2014. "At work but earning less : trends in decent pay and minimum wages for young people," ILO Working Papers 994862833402676, International Labour Organization.
    7. Lim, Lin Lean., 2011. "Building an Asia-Pacific youth employment coalition : reviewing past policies and the way forward," ILO Working Papers 994676873402676, International Labour Organization.
    8. Jellal, Mohamed, 2012. "Maroc salaire minimum emploi et pauvreté
      [Morocco minimum wage employment and poverty]
      ," MPRA Paper 38491, University Library of Munich, Germany.
    9. Rice, Patricia, 2006. "Wages and the education and employment choices of young people: empirical analysis for Great Britain," Discussion Paper Series In Economics And Econometrics 0612, Economics Division, School of Social Sciences, University of Southampton.

    More about this item

    Keywords

    Minimum wage; New Zealand; natural experiment; difference-in-differences;

    JEL classification:

    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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