Employment effects of the minimum wage: evidence from the Spanish 2019 reform

Abstract

We examine the employment effects of the 2019 minimum wage increase in Spain on individual probabilities of losing employment status (extensive margin) and lowering work intensity (intensive margin). To do so, we use variation of workers’ exposure to the reform by comparing monthly employment transitions into unemployment and reductions in number of working hours between employees earning less than the minimum wage (treatment group) and those earning more and that should therefore be unaffected by the reform (control group). We find that the new minimum wage significantly increased the probability of experiencing unemployment (1.7 percentage points) and a reduction in work intensity (0.9 percentage points) for treated workers after one year. Our results suggest substantial heterogeneity by age, prior work intensity, economic sector and geographical region of employees affected by the reform.