The Effect of Minimum Wage on Labor Market Outcomes of Foreign-Born Workers in European Countries

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 econometric 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 done in the U.S. 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. Other than that, 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.