Heterogeneous Firm Responses to Rising Teenage Wages

Abstract:     
This paper uses data from Statistics New Zealand’s Linked Employer-Employee Database (LEED) to document the pattern of firm-level teenage employment over the period 2000–2007, and analyse the responses of firms to the increasing relative wages of teenage workers, against a backdrop of substantial increases in the minimum wages for teenage workers. First, these increases plausibly raised average teenage wages by 5-10percent relative to adult workers. Although the effect on a typical firm’s wage bill is small: about 0.5percent on average and about 1.5percent for firms in the main teenage-employing industries, the average impact for a significant fraction of high teenage-employing firms could be about 5 per cent.

Second, among continuing firms, we find mixed evidence whether high initial teenage-employers reduced their teenage employment relative to other firms over the period. Analysing changes over the period as a whole, we estimate that initial high teenage-employing firms reduced their subsequent teenage employment by 2.5-3 percentage points for firms in the main teenage-employing industries, and about 1.2 percentage points for firms in other industries. However, analysing annual changes, we find small and insignificant effects for firms in the main teenage-employing industries and positive effects for firms in other industries.

Third, we find preliminary evidence that firms with high levels of teenage employment at the beginning of the period had lower survival rates; firms in the main (other) teenage-employing industries with initial teenage-employment shares greater than 0.3, had about a 3percent (10 percent) lower survival rate than other firms. We also estimate that firms entering the main teenage-employing industries during the period had about 2 per cent higher teenage-employment shares in the final year of the period than continuing firms.

Keywords: Wages, Teenagers, Heterogenous responses, Firms, Minimum wage

JEL Classification: C01, D21, D63

Accepted Paper Series