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

CentER Discussion Paper Series No. 2016-001

29 Pages Posted: 18 Jan 2016

See all articles by Jan Kabatek

Jan Kabatek

University of Melbourne - Melbourne Institute of Applied Economic and Social Research; IZA; Netspar

Multiple version iconThere are 2 versions of this paper

Date Written: December 2, 2015

Abstract

This paper investigates the effects of the age-dependent minimum wage on youth employment flow 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 aged of 23, workers become eligible for the "adult" minimum wage which does not increase further. This creates an incentive for firms to discriminate against employees on the basis of their age, substituting more expensive older workers with younger ones. In order to grasp the size of these effects, I analyze 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 increases by 1.1% in the three calendar months which are closest to a worker's next birthday. This effect exhibits substantial heterogeneity with respect to a worker's age, showing that young and inexperienced workers are more likely to be affected by the discontinuities. The size of the effect also varies by the sector of employment, being particularly large for supermarket employees. Job accession peaks just after workers' birthdays, representing both entry of the workers with higher reservation wages and re-employment of the workers whose jobs are dissolved around the time of the discontinuity.

Keywords: Minimum wage, age-dependency, labor market flows

JEL Classification: J23, J31, J38, M51

Suggested Citation

Kabatek, Jan, Happy Birthday, You're Fired! The Effects of an Age-Dependent Minimum Wage on Youth Employment Flows in the Netherlands (December 2, 2015). CentER Discussion Paper Series No. 2016-001. Available at SSRN: https://ssrn.com/abstract=2717468 or http://dx.doi.org/10.2139/ssrn.2717468

Jan Kabatek (Contact Author)

University of Melbourne - Melbourne Institute of Applied Economic and Social Research ( email )

Level 5, FBE Building, 111 Barry Street
Parkville, Victoria 3010
Australia

IZA ( email )

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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