The effect of minimum wage on the labor market outcomes of foreign-born workers in European countries -

Abstract

This paper investigates the effect of the minimum wage on the labor market outcomes of foreign-born workers, natives and non-Europeans. We test this impact by using panel data on 20 European countries from 2002 to 2013, and running two major empirical models. We apply several econometrics approaches and control for several independent variables such as education, employment in specific sectors, and some of the macroeconomic indicators. We find that the employment effect is insignificant for the three subgroups. Moreover, we find that the earnings of foreign-born workers are positively affected by an increase in the minimum wage. These findings are consistent with previous empirical work. The effect of the minimum wage on the average earnings of natives in European countries is positive and highly significant as well. This is inconsistent with previous empirical work done on skilled and unskilled non-immigrants in the U.S. When we try controlling for the average wage, we find that increases in the minimum wage that are not part of an overall increase in the wage scale do not significantly affect the earnings of immigrants. In this case, an increase in the minimum wage only affects native workers (with a positive effect on their earnings, and a slightly negative effect on their employment). However, when we try controlling for the unemployment rate, we find that the positive effect of the minimum wage on earnings of the subgroups remains the same as our main results with a slightly negative effect on the employment of immigrants. Finally, we notice that in the long run, the effect of minimum wage on earnings of the three subgroups remains positive, but is slightly negative on the employment of these subgroups, suggesting the possible existence of labor market rigidities.