The Impact of Minimum Wages on Labour Market Transitions

We investigate differences in labour market transition rates between high and low minimum wage regimes using Canadian data spanning 1979–2008. We find that higher minimum wages result in lower hiring rates but also lower job separation rates. Importantly, the reduced separation rates are due mainly to reductions in layoffs, occur in the first six months of a job and are present for unskilled workers of all ages. Thus, jobs in higher minimum wage regimes are more stable but harder to get. For older workers, these effects are almost exactly offsetting, resulting in little impact on the employment rate.