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The Effect of Minimum Wages on Youth Employment in Canada

A Panel Study

Previous U.S. panel estimates of minimum wage effects have been criticized on the grounds that their identification rests on comparisons of "low-wage" and "high-wage" workers. Using Canadian panel data for 1988–90, I compare estimates based on the traditional U.S. methodology with those based on samples of "low-wage" workers exclusively. The results would appear to vindicate the critics: The minimum wage effect from the latter approach is virtually zero. Yet, estimates from different subgroups of low-wage workers indicate that there is a significant disemployment effect for those with longer low-wage employment histories. This highlights the heterogeneity within low-wage workers and the importance of carefully defining the target group not solely based on workers’ wages.