The Short-Term Impact of the Minimum Wage on Employment: Evidence from Spain

Abstract

Minimum wages have been widely discussed in the literature. The minimum wage impact on employment strongly depends on labor market concentration and the point at which it is located in the income distribution. Therefore, its study essentially involves exploring whether it has been set too far, beyond the competitive market wage. In 2019, the Spanish government decided to raise the minimum wage by 22.3%. This increase is of a previously unseen magnitude. Using rich administrative data, we combine Propensity Score Matching and a Difference-in-Differences model to evaluate the short- unemployment effect of this policy. We fi nd that the reform increased the probability of job loss within a range of 0.38pp.(7.8%) and 0.44 pp. (9.2%) for workers below the new minimum wage, which implies an employment elasticity between 0.3 and 0.4. In addition, our results suggest that the bulk of this effect is concentrated in the group of workers furthest from the new minimum wage. This is the segment of the income distribution that bore the bulk of the employment costs of the minimum wage increase.