The Effect of Minimum Wages on Youth Employment in Canada

Abstract

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.