Effects of Age-Dependent Minimum Wages on Youth Employment Flows in the Netherlands

This paper investigates the effects of age-dependent minimum wages on youth employment in the Netherlands. The Dutch minimum wage for workers aged 15-23 is defined as a step-wise increasing function of a worker's calendar age. At the age of 23, workers become eligible for the "adult" minimum wage which does not increase further with age. This creates an incentive for firms to discriminate against employees on the basis of their age, substituting more expensive older workers by younger hires.In order to grasp the size of these effects, I analyze monthly flows in and out of employment using Dutch administrative records. I account for the time remaining until workers' next birthdays, exploiting the fact that firms are facing a sharp discontinuity in labor costs in the month when a worker turns one year older. The results show a significant increase in job separation and job accession rates around the time of this discontinuity: the probability of job separation increases by 1-2\% in the 3 months which are preceding workers' birthdays. The size of this effect decreases with age, which is suggestive of human capital accumulation and better screening for older workers' abilities. Job accession peaks just after workers' birthdays, representing both entry of the workers with higher reservation wages and re-employment of the workers whose job was dissolved around the time of the discontinuity.