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

Do Lower Minimum Wages for Young Workers Raise their Employment? Evidence from a Danish Discontinuity. Claus Thustrup Kreiner, Daniel Reck, Peer Ebbesen Skov. Centre for Economic Policy Research, June 4, 2017. https://cepr.org/sites/default/files/3564_KREINER%20-%20Do%20Lower%20Minimum%20Wages%20for%20Young%20Workers%20Raise%20their%20Employment_0.pdf

Abstract: This paper estimates the long-run impact of youth minimum wages on youth employment by exploiting a large discontinuity in Danish minimum wage rules at age 18 and using monthly payroll records for the Danish population. We show theoretically how the discontinuity in the minimum wage may be exploited to estimate the casual eect of a change in the minimum wage of youth on their employment. On average, the hourly wage rate jumps up by 40 percent when individuals turn eighteen years old. Employment (extensive margin) falls by 33 percent and total labor input (extensive and intensive margin) decreases by around 45 percent, leaving the aggregate wage payment nearly unchanged. Data on flows into and out of employment show that the drop in employment is driven almost entirely by job loss when individuals turn 18 years old. We estimate that the relevant elasticity for evaluating the eect on youth employment of changes in their minimum wage is about -0.8.

Keywords: Minimum wage policy, employment, regression discontinuity