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Welfare Reform on the Web (April 2007): Minimum wage - overseas

Youth minimum wage reform and the labour market in New Zealand

D. Hyslop and S. Stillman

Labour Economics, vol.14, 2007, p. 201-230

Prior to 2001, a youth minimum wage, applying to 16-19 year olds, was set at 60% of the adult minimum. The reform firstly lowered the eligible age for the adult minimum wage from 20 to 18 years and secondly raised the youth minimum wage for 16-17 year olds in two annual steps from 60% to 80% of the adult minimum. This article estimates the impact of the reform by comparing average outcomes for these two groups of teenagers, before and after the change, to those for 20-25 year olds, who were unaffected by the reform. No evidence of adverse effects on youth employment immediately after the reform was found, but some weak evidence of employment loss by 2003 emerged. There was also evidence of a 10-20% increase in hours worked by employed 16-17 year olds following the reform, and up to a 10% increase for employed 18-19 year olds. However there was also evidence of a decline in educational enrolment, and an increase in general unemployment, inactivity and benefit receipt rates, suggesting that while the minimum wage reform increased the labour supply of teenagers, this increase was not matched by as large an increase in employment overall.

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