Minimum wages in a dual labor market: Evidence from the 2019 minimum-wage hike in Spain

Alexander Hijzen, Mateo Montenegro and Ana Sofia Pessoa
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Alexander Hijzen: OCDE / OECD - Organisation de Coopération et de Développement Economiques = Organisation for Economic Co-operation and Development
Mateo Montenegro: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Ana Sofia Pessoa: International Monetary Fund (IMF)

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Abstract: This paper provides an assessment of the 2019 minimum-wage hike in Spain, which increased the minimum wage by 22 % and directly concerned 7 % of dependent employees. We make use of two complementary approaches, one that follows incumbent workers over time and hence does not take account of any possible effects on new hires, and one that tracks employment in wage bins over time and takes account of both separations and new hires. The results are as follows. First, the minimum wage hike significantly increased the wages of directly affected workers, with small positive wage spillovers on workers with initial wages just about the new minimum wage. Second, the increase in wages comes at the expense of a reduction in low-wage employment. While employment increases just above the minimum wage, it is not sufficient to offset the decline in employment below it. Third, the reduction in employment is mainly driven by a reduction in hires of workers on open-ended contracts and to a smaller extent job losses among workers on fixed-term contracts. This illustrates that limiting the study of minimum wage hikes to stayers can dampen the estimated impact on employment.

Keywords: Minimum wage; Dual labor market (search for similar items in EconPapers)
Date: 2026-02
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Published in Labour Economics, 2026, 98, pp.102826. ⟨10.1016/j.labeco.2025.102826⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05457714

DOI: 10.1016/j.labeco.2025.102826

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