The Effects of Dutch Youth Minimum Wage Increases on Income Inequality

Koen Steenks (), Arjan Heyma () and Tobias Vervliet ()
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Koen Steenks: Vrije Universiteit Amsterdam
Arjan Heyma: SEO Amsterdam Economics
Tobias Vervliet: SEO Amsterdam Economics

De Economist, 2025, vol. 173, issue 2, No 2, 299-330

Abstract: Abstract This study employs increases in the Dutch Youth Minimum Wage (YMW) in 2017 and 2019 for certain age groups as a natural experiment to examine the impact of changes in minimum wages on income inequality through the employment-channel. Using the Difference-in-Difference (DiD) and Two-Stage Least Squares (2SLS) methods, it estimates the effects of YMW increases on hourly wages and working hours across various income segments. These effects are then used to simulate the monthly income distribution after the YMW increases in 2017 and 2019. This way, a comparative analysis is conducted between the observed income distribution prior to the YMW increases and the simulated income distribution thereafter, focusing on the aspect of income inequality. The findings reveal distinct effects based on the magnitude of the wage increase. Modest increases (for individuals aged 18–19) and substantial increases (for individuals aged 20–22 in 2017 and 20–21 in 2019) both generate spike and spillover effects, influencing individuals earning hourly wages up to at least 120% of the new minimum wage. Small increases reduce working hours for higher-income individuals, while larger increases negatively affect working hours for middle-income earners (100–150% of the new YMW) but benefit those earning below 100% and above 150% of the new threshold. Overall, both small and large YMW increases contribute to income redistribution by altering wages and working hours.

Keywords: Minimum wage; Income inequality; Difference-in-difference; Two-stage least squares (search for similar items in EconPapers)
JEL-codes: D31 J48 J64 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10645-025-09451-z

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