Pierre Brochu ~ Department of Economics ~ University of Ottawa

The Impact of Minimum Wages on Labour Market Transitions

with David A. Green

Economic Journal, Vol. 123 No. 573 (December 2013), pp. 1203-1235

Abstract:

We investigate differences 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 find 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 layoffs, occur in the first 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 layoff rate. We present a search and matching model that fits with these patterns and test its implications. Overall, our results imply that jobs in higher minimum wage regimes are more stable but harder to get. For older workers, these effects almost exactly offset each other, resulting in little impact on the employment rate. One might conclude from the small impact of minimum wages on the employment rate that they do not affect the labour market for older workers but our results indicate this is not true.

Older versions: IFS Working Paper, June 2011.

Working Paper, October 2012.

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