Abstract:

This paper empirically tests whether minimum wages may have positive employment effects when diverging from a perfect competition framework. I use administrative data from 1986 to 2013 to segment Portugal into several local labour markets and construct Herfindahl–Hirschman Indices to measure concentration levels in each market. I find that increased minimum wage exposure has differential employment effects depending on labour market concentration - estimates indicate employment responds negatively in highly competitive markets and positively in highly concentrated ones. These results are robust to the usage of instrumental variables and to different definitions of local labour markets, although the persistence of these effects varies across specifications. Labour markets are highly heterogeneous in their concentration level, which can help reconcile the conflicting results in the minimum wage literature and provide new policy insights.