Seminar: Minimum Wages, Age-Tagging, and Youth Employment in the Netherlands

Time: 13.00-14.00 hours
Location: CPB-office, Van Stolkweg 14, The Hague

Presentation: Jan Kabatek (University of Melbourne)

Discussant: Maurice Doll (Min. SZW)

Language: English

Registration:  Please register here.

Abstract subject:
This paper investigates the effects of age-tagged minimum wages on youth employment in the Netherlands. Dutch minimum wage for workers aged 15-23 is defined as a step-wise increasing function of worker's calendar age. At the age of 23, workers become eligible for “adult" minimum wage which does not increase further. This creates an incentive for firms to discriminate employees on the basis of their age, substituting more expensive older workers by younger hires. In order to grasp the scope of these effects, I analyze monthly flows in and out of the employment using administrative records for the entire youth population of the Netherlands. I account for the time remaining until workers' next birthday, exploiting the fact that firms are facing sharp discontinuity in labor costs in the month when worker turns one year older. The results show a sizable increase in job separation and accession rates around the time of this discontinuity: for workers earning minimum wages, the probability of job separation increases by 8-17% in the 2 months closest to their birthdays. The size of the effect decreases with age, which is suggestive of human capital accumulation and better screening for older workers' abilities. The job accession peaks past the 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 also 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.

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