Minimum Wage and Youth Employment Rates in Spain: New Evidence for the Period 2000-2008

Abstract

The existence of a universal minimum wage has been, and continues to be, an intensely debated issue. On the one hand, the controversy surrounding minimum wage appears to be partly justified because the effects of the introduction and increase of minimum wage may differ greatly depending on the labour market structure. On the other, the current academic literature on the subject do not provide clear evidence of which collectives are likely to be more affected in terms of employment by the introduction or increase of minimum wage. Using the data for the period 2000-2008, this study aims to examine the effect of minimum wage on the youth employment in Spain, taking into account both the existing regional differences and the dynamic behaviour of employment. Unlike other previous academic works on this subject, we are also going to consider the effect of seasonality on employment, a particularly wide-spread feature of youth employment in Spain. The results obtained in our analysis do not provide clear evidence about any negative effect of minimum wage on youth employment during the period under study. While this result may point out to the existence of a monopsonistic structure of the labour market, the coexistence of increases both in minimum wage and in youth employment rate during this period could also be explained in the light of a perfect competitive labour market with a high degree of dynamism and a structural change in employment demand.