The Impact of Minimum Wages on Labour Market Transitions

Abstract

We investigate dierences in labour market transition rates in high versus low minimum wage regimes using Canadian data spanning 1979 to 2008. The data include consistent questions on job tenure and reason for job separation for the whole period. Over the same time frame, there were over 140 minimum wage changes in Canada. We nd that higher minimum wages are associated with lower hiring rates but also with lower job separation rates. Importantly, the reduced separation rates are due mainly to reductions in layos, occur in the rst 6 months of a job, and are present for unskilled workers of all ages. Our estimates imply that a 10% increase in the minimum wage generates a 3.9% reduction in the layo rate. We present a search and matching model that ts with these patterns and test its implications. Overall, our results imply