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The short-term impact of the minimum wage on employment: Evidence from Spain

Pablo Fernández-Baldor Laporta

No 2022/06, Working Papers from Institut d'Economia de Barcelona (IEB)

Abstract: Minimum wages have been widely discussed in the literature. The mínimum wage impact on employment strongly depends on labor market concentration and the point at which it is located in the income distribution. Therefore, its study essentially involves exploring whether it has been set too far, beyond the competitive market wage. In 2019, the Spanish government decided to raise the minimum wage by 22.3%. This increase is of a previously unseen magnitude. Using rich administrative data, we combine Propensity Score Matching and a Difference-in-Differences model to evaluate the short-run employment effect of this policy. We find that the reform increased the probability of job loss within a range of 0.38 pp. (7.8%) and 0.44 pp. (9.2%) for workers below the new minimum wage, which implies an employment elasticity between 0.3 and 0.4. In addition, our results suggest that the bulk of this effect is concentrated in the group of workers furthest from the new minimum wage. This is the segment of the income distribution that bore the bulk of the employment costs of the minimum wage increase.

Keywords: Minimum Wage; Employment; Job Loss; Propensity Score Matching; Difference-in-Differences (search for similar items in EconPapers)
JEL-codes: J23 J31 J38 J42 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2022
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