"Happy Birthday, you're Fired!" - Effects of Age-Dependent Minimum Wage on Youth Employment Flows in the Netherlands

Category: Money and Macro Brown Bag Seminar
When: 11 November 2015
, 12:00
 - 13:00
Where: Deutsche Bank (HoF E.01)
Speaker: Jan Kabátek (University of Melbourne) This week on Wednesday. ROOM CHANGE: Deutsche Bank (HoF E.01)

This paper investigates the effects of the age-dependent minimum wage on youth employment flows in the Netherlands. The Dutch minimum wage for workers aged 15-23 is defined as a step-wise increasing function of a worker's calendar age. At the age of 23, workers become eligible for the ``adult'' minimum wage which does not increase further with age. This creates an incentive for firms to discriminate against employees on the basis of their age, substituting more expensive older workers by younger hires.
In order to grasp the size of these effects, I analyse monthly flows in and out of employment using administrative records for the entire youth population of the Netherlands. I account for the time remaining until workers' next birthdays, exploiting the fact that firms are facing a sharp discontinuity in labor costs in the month when a worker turns one year older. The results show a significant increase in job separation around the time of this discontinuity: the probability of job separation increases by 1-2\% in the three calendar months which are closest to a worker's next birthday. Job accession peaks just after workers' birthdays, representing both entry of the workers with higher reservation wages and re-employment of the workers whose job was dissolved around the time of the discontinuity. I investigate characteristics of the latter group, showing that they do not face a penalty in terms of the length of their unemployment spells, but they are likely to earn lower wages in their prospective jobs.