HUMAN CAPITAL THEORY AND ITS IMPLICATIONS IN THE MACROECONOMIC OUTCOMES OF MINIMUM WAGES

Minimum wage policy has re-appeared on governmental agendas across Europe. The main reason for this is that labor markets have experienced significant changes over the last decade. First of all, the the number of low-paid workers remains still high in Europe - 17 % of EU employees were low wage earners in 2010 - requiring a revision on minimum wage policy and its effectiveness. Secondly, there has been a further decline in Trade Union coverage and effectiveness, particularly in terms of setting wage floors and protecting the low paid. In Germany, for example, this caused debates on the minimum wage to become a national issue. Previous literature studied minimum wages by dividing the groups based on age characteristic - teenagers, young adults and adults - finding mostly negative effects on employment. Age is used as a proxy for the individual’s work experience and skills originating from Capital Theory. In this paper, using a new dataset from Eurostat, the aggregated Labour Force Survey (EU LFS), the impact of a minimum wage policy on the employment of different age groups is investigated by incorporating an additional proxy: education. It was found that minimum wage effects vary substantially between the groups based on their education qualifications with more adverse effects on teenagers and young adults with up to post-secondary education. Finally, in order to control for labor market institutions, a set of control variables has been incorporated.