Abstract
We investigate firm heterogeneity in responses to minimum wage changes leveraging on a policy reform in 2012 in Greece that introduced a youth sub-minimum through a sharp reduction in the minimum wage that was larger for youth. Using administrative linked employer–employee panel data and a difference-in-differences estimator, we find that, although wages decreased across all firms following the policy reform, adult wages decreased by more, whereas youth wages decreased by less in firms with a higher share of youth in employment. We also find that, in these firms, adult employment increased by more, while youth employment increased by less or even decreased and that these changes reflected mainly new hires rather than job separations. These heterogeneous responses to the change in the minimum wage across firms are not entirely consistent with the competitive model of the labour market.
Highlights
There is a vast literature on the employment effects of minimum wages, but the debate among economists has not yet been settled (Manning, 2016)
Minimum wage decreases may provide an alternative test of the prediction of the competitive labour market model that there is a negative relationship between the level of the minimum wage and employment
We leverage on the unique case of the drastic reduction of the minimum wage in Greece in February 2012 that was larger among youth – the minimum wage decreased by 32% for those younger than 25 years and by 22% for those who were 25 years
Summary
There is a vast literature on the employment effects of minimum wages, but the debate among economists has not yet been settled (Manning, 2016). We use administrative linked employer–employee panel data and a difference-in-differences estimator to identify the short-run effect of this policy on wages and employment of youth and adults across firms with different shares of youth in employment. Indicate no significant impact of the reform on job separations, or differences in job separations across firms with different shares of youth — implying that the changes in employment reflect entirely changes in new hires. Overall, these results suggest heterogeneous responses to the change in the minimum wage across firms that are not entirely consistent with the competitive model of the labour market
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