published in: Labour Economics, 2007, 14 (2), 201-230
This paper analyses the effects of a large reform in the minimum wages affecting youth
workers in New Zealand since 2001. Prior to this reform, a youth minimum wage, applying to
16-19 year-olds, was set at 60% of the adult minimum. The reform had two components.
First, it lowered the eligible age for the adult minimum wage from 20 to 18 years, and resulted
in a 69 percent increase in the minimum wage for 18 and 19 year-olds. Second, the reform
raised the youth minimum wage in two annual steps from 60% to 80% of the adult minimum,
and resulted in a 41 percent increase in the minimum wage for 16 and 17 year-olds over a
two-year period. We use data from the New Zealand Household Labour Force Survey
(HLFS) to estimate the impact of these changes on a variety of labour market and related
outcomes. We compare the average outcomes of these two groups of teenagers, before and
after the policy reform, to those of 20-25 year-olds, who were unaffected by the reform. We
find no robust evidence of adverse effects on youth employment or hours worked. In fact, we
find stronger evidence of positive employment responses to the changes for both groups of
teenagers, and that 16-17 year-olds increased their hours worked by 10-15 percent following
the minimum wage changes. Given the absence of any adverse employment effects, we find
significant increases in labour earnings and total income of teenagers relative to young
adults. However, we do find some evidence of a decline in educational enrolment, and an
increase in unemployment and inactivity, although these results depend on the specification
adopted.
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