Age-Differentiated Minimum Wage: An Exploratory Model

Joaquin Poblete and Mauricio Larrain

No 213, Econometric Society 2004 Latin American Meetings from Econometric Society

Abstract: The fact that minimum wages seem specially binding for young workers has led some countries to adopt age-differentiated minimum wages. We develop a dynamic two sector labor market model where workers with heterogeneous endowments of natural skills gain productivity through experience. We compare two equally binding schemes of single and age-differentiated minimum wages showing that even though with differentiated minimum wages a more equal distribution of income is achieved, such a scheme creates a more unequal distribution of wealth by forcing less skilled workers to remain in the uncovered sector for longer. We also show that relaxing minimum wage solely for young workers might be harmful for the less skilled ones. Suggestive evidence from Chile -where a differentiated minimum wage for workers under the age of 18 was introduced in 1989- lends support to the predictions of our model

Keywords: Age-differentiated minimum wage; income distribution; wealth distribution segmented labor markets. (search for similar items in EconPapers)
JEL-codes: D30 D31 J31 (search for similar items in EconPapers)
Date: 2004-08-11
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Persistent link: https://EconPapers.repec.org/RePEc:ecm:latm04:213

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