Disentangling the Minimum Wage Puzzle: An Analysis of Worker Accessions and Separations

Abstract

Changes in the legislation in the mid-80s in Portugal provide remarkably good conditions foranalysis of the employment effects of mandatory minimum wages, as the minimum wageincreased sharply for a very specific group of workers. Relying on a matched employeremployee panel data set, we model gross worker flows - accessions and separations - incontinuing firms, as well as in new firms and those going out of business, using a countregression model applied to proportions. Employment trends for teenagers, the affectedgroup, are contrasted to those of older workers, before and after the raise in the youthminimum wage. The major effect on teenagers of a rising minimum wage is the reduction ofseparations from the employer, which compensates for the reduction of accessions to newand continuing firms. In this sense, our results can reconcile some of the previous evidencethat has been presented in the empirical literature when analyzing the aggregate impact ofthe minimum wage on youth employment without decomposing it by type of worker flow.

Keywords: employment, minimum wage

JEL Classification: D21, J23, J38