Do Lower Minimum Wages for Young Workers Raise Their Employment? Evidence from a Danish Discontinuity

Abstract

We estimate the impact of youth minimum wages on youth employment by exploiting a large discontinuity in Danish minimum wage rules at age 18, using monthly payroll records for the Danish population. The hourly wage jumps by 40% at the discontinuity. Employment falls by 33%, and total input of hours decreases by 45%, leaving the aggregate wage payment almost unchanged. We show theoretically how the discontinuity may be exploited to evaluate policy changes. The relevant elasticity for evaluating the effect on youth employment of changes in their minimum wage is in the range 0.6 to 1.1.

Is a Minimum Wage an Appropriate Instrument for Redistribution?

“…Third, further research might find a useful role for a minimum wage that applies to only a subset of the working population, such as industry‐ or age‐specific minimum wages (see also Kabátek ; Kreiner et al . ). Indeed, our study suggests that minimum wages may best be targeted to a subset of workers who have the highest propensity to continue schooling if rationed out of the low‐skilled labour market—such as the working youth.…”

Cross‐Country Evidence on Labor Market Institutions and Young Adult Employment through the Financial Crisis

“…This article's analysis shows that labor market institutions and their interactions with changes in macroeconomic conditions correlate strongly with cross‐country developments in young adult labor markets. Recent analyses from Denmark (Kreiner, Reck, and Skov Forthcoming), Greece (Yannelis ), Sweden (Saez, Schoefer, and Seim Forthcoming), and the United States (Clemens and Wither ) provide complementary evidence that youth and/or young adult employment tends to be higher, all else equal, when its cost to firms is lower. The evidence in these studies is thus consistent with the current article's hypothesis that the rigidity of labor costs significantly shaped young adult employment outcomes during the global financial crisis.…”

“…The 2016 version of Clemens and Wither () can be found at the following link: http://econweb.ucsd.edu/j1clemens/pdfs/ClemensWitherMinimumWageGreatRecession.pdf. Kreiner, Reck, and Skov (Forthcoming) apply a similar framework to their analysis of youth minimum wage rates in Denmark, Clemens and Strain () present a simplified version of the framework that abstracts from considerations related to labor supply, and Clemens, Kahn, and Meer () extend the framework to consider non‐wage job attributes.…”

Zero-hours contracts and labour market policy

“…In a rather different context of union bargained minima,Kreiner et al (2017) study the effect of a change in the youth minimum wage in Denmark and find an employment elasticity to the wage rate of -0.8.…”