published in: Journal of the European Economic Association, 2006, 4 (5), 988-1013. Reprinted in J. T. Addison (ed.) Recent Developments in Labor Economics, Vol. I, UK, 2007, 179-204
Changes in the legislation in the mid-80s in Portugal provide remarkably good conditions for
analysis of the employment effects of mandatory minimum wages, as the minimum wage
increased sharply for a very specific group of workers. Relying on a matched employer
employee panel data set, we model gross worker flows - accessions and separations - in
continuing firms, as well as in new firms and those going out of business, using a count
regression model applied to proportions. Employment trends for teenagers, the affected
group, are contrasted to those of older workers, before and after the raise in the youth
minimum wage. The major effect on teenagers of a rising minimum wage is the reduction of
separations from the employer, which compensates for the reduction of accessions to new
and continuing firms. In this sense, our results can reconcile some of the previous evidence
that has been presented in the empirical literature when analyzing the aggregate impact of
the minimum wage on youth employment without decomposing it by type of worker flow.
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