The impact of the 2008 youth minimum wage reform
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This paper analyses the impacts of the 2008 policy reform which replaced the youth minimum wage for 16-17 year-old workers, previously set at 80% of the adult minimum wage, with a new entrants minimum rate applicable for the first three months or 200 hours of employment, after which the adult minimum applies. This resulted in a 28% increase in the real value of the minimum wage faced by 16-17 year-old workers, making the minimum wage substantially binding for this age group. We estimate the impact of this reform on 16-17 year-olds employment and related labour market outcomes, by comparing the average outcomes of this group, before and after 2008, to those of 20-21 who were not directly affected by the reform. Although 18-19 year-olds were not directly affected by the 2008 policy change, they were potentially indirectly affected either by the adult minimum wage constraining their wages and/or by employment substitution effects from 16-17 year-olds; for this reason, we consider 20-21 year-olds a potentially less-affected comparison group. We first show that, by 2008, minimum wages had a substantial effect on the wages of 16-17 year-olds and, to a lesser extent, 18-19 year-olds. Although we find no evidence of adverse employment effects immediately following the policy change in 2008, we conclude that it lowered the employment rate of 16-17 year-olds by 3-6 percentage points in the subsequent two years. Most of this employment loss was borne by students: in fact, the employment rate among non-students increased, there is no evidence of an increase in the percentage of 16-17 year-olds who were unemployed, and the overall inactivity rate of this age-group decreased following 2008. We also find evidence of employment substitution towards 18-19 year-olds, again largely among students. In addition, relative to 20-21 year-olds, we estimate the average hours worked by 16-17 and 18-19 year-olds fell after 2008, as did their earnings and total incomes.