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Evidence-based policy making

IZA World of Labor is an online platform that provides policy analysts, journalists, academics and society generally with relevant and concise information on labor market issues. Based on the latest research, it provides current thinking on labor markets worldwide in a clear and accessible style. IZA World of Labor aims to support evidence-based policy making and increase awareness of labor market issues, including current concerns like the impact of Covid-19, and longer-term problems like inequality.

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The effects of minimum wages on youth employment and income
Minimum wages reduce entry-level jobs, training, and lifetime income

Charlene Marie Kalenkoski

Policymakers often propose a minimum wage as a means of raising incomes and lifting workers out of poverty. However, improvements in some young workers’ incomes as a result of a minimum wage come at a cost to others. Minimum wages reduce employment opportunities for youths and create unemployment. Workers miss out on on-the-job training opportunities that would have been paid for by reduced wages upfront but would have resulted in higher wages later. Youths who cannot find jobs must be supported by their families or by the social welfare system. Delayed entry into the labor market reduces the lifetime income stream of young unskilled workers.

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latest articles

  • How are minimum wages set? Updated

    Countries set minimum wages in different ways, and some countries set different wages for different groups of workers

    Richard Dickens , September 2023
    The minimum wage has never been as high on the political agenda as it is today, with politicians in Germany, the UK, the US, and other OECD countries implementing substantial increases in the rate. One reason for the rising interest is the growing consensus among economists and policymakers that minimum wages, set at the right level, may help low paid workers without harming employment prospects. But how should countries set their minimum wage rate? The processes that countries use to set their minimum wage rate and structure differ greatly, as do the methods for adjusting it. The different approaches have merits and shortcomings.
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  • Should the earned income tax credit rise for childless adults? Updated

    The earned income tax credit boosts income and work effort among low-income parents, especially single mothers, and has contributed to the steep rise in employment among single mothers in the 1990s.

    Harry J. Holzer , September 2023
    The earned income tax credit provides important benefits to low-income families with children. At substantial costs (over $70 billion to the US federal government), it increases the incomes of such families while encouraging parents to work more by subsidizing their incomes. But low-income adults without children and non-custodial parents receive very low payments under the program in most years. Many of these adults are less-educated men, whose labor force participation rates and relative wages have been declining for years. They might benefit significantly from a more generous earned income tax credit for childless adults.
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  • Do institutions matter for entrepreneurial development? Updated

    In post-Soviet countries, well-functioning institutions are needed to foster productive entrepreneurial development and growth

    Ruta Aidis , August 2023
    Since the collapse of the Soviet Union, the differing impact of institutions on entrepreneurship development is undeniable. Several post-Soviet countries benefitted from early international integration by joining the EU, adopting the euro, and becoming OECD members. This process enabled entrepreneurship to develop within institutional contexts where democratic and free market principles were strengthened. In general, however, post-Soviet economies continue to be characterized by higher levels of corruption, complex business regulations, weak rule of law, uncertain property rights and often, lack of political will for institutional change.
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  • How should job displacement wage losses be insured? Updated

    Wage losses upon re-employment can seriously harm long-tenured displaced workers if they are not properly insured

    Donald O. Parsons , July 2023
    Job displacement represents a serious earnings risk to long-tenured workers through lower re-employment wages, and these losses may persist for many years. Moreover, this risk is often poorly insured, although not for a lack of policy interest. To reduce this risk, most countries mandate scheduled wage insurance (severance pay), although it is provided only voluntarily in others, including the US. Actual-loss wage insurance is uncommon, although perceived difficulties may be overplayed. Both approaches offer the hope of greater consumption smoothing, with actual-loss plans carrying greater promise, but more uncertainty, of success.
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  • Instruction time and educational outcomes

    The quality of instruction and the activities it replaces determine the success of increased instruction time

    Andrés Barrios Fernández , July 2023
    Increasing instruction time might seem a simple way to improve students' outcomes. However, there is substantial variation in its effects reported in the literature. When focusing on school day extensions, some studies find no effects, while others find that an additional hour of daily instruction significantly improves test scores. A similar pattern arises when examining the effect of additional days of class. These mixed findings likely reflect differences in the quality of instruction or in the activities that are being replaced by additional instruction. Hence these elements need to be considered when designing policies that increase instruction time.
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  • How to support adult caregivers?

    Caregiving for older adults is detrimental to caregivers’ well-being and requires policy interventions to support them

    Joan Costa-Font , June 2023
    Some studies estimate that the value of time spent on unpaid caregiving is 2.7% of the GDP of the EU. Such a figure exceeds what EU countries spend on formal long-term care as a share of GDP (1.5%). Adult caregiving can exert significant harmful effects on the well-being of caregivers and can exacerbate the existing gender inequalities in employment. To overcome the detrimental cognitive costs of fulfilling the duty of care to older adults, focus should be placed on the development of support networks, providing caregiving subsidies, and enhancing labor market legislation that brings flexibility and level-up pay.
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  • The widespread impacts of remittance flows Updated

    Remittances have the potential to lift developing economies

    Catalina Amuedo-DorantesSusan Pozo , May 2023
    Remittances have risen spectacularly in absolute terms and in relation to traditional sources of foreign exchange, such as export revenues. Remittances can improve the well-being of family members left behind and boost growth rates of receiving economies. They can also create a culture of dependency, lowering labor force participation in recipient nations, promoting conspicuous consumption, and accelerating environmental degradation. A more thorough understanding of their impacts can help formulate policies that enable developing economies to harness the most out of these monetary inflows.
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  • Unions and investment in intangible capital Updated

    When workers and firms cannot commit to long-term contracts and capital investments are sunk, union power can reduce investment

    Gabriele CardulloGiovanni Sulis , May 2023
    Although coverage of collective bargaining agreements has been declining for decades in most countries, it is still extensive, especially in non-Anglo-Saxon countries. Strong unions may influence firms' incentives to invest in capital, particularly in sectors where capital investments are sunk (irreversible), as in research-intensive sectors. Whether unions affect firms' investment in capital depends on the structure and coordination of bargaining, the preference of unions between wages and employment, the quality of labor-management relations, the structure of corporate governance, and the existence of social pacts, among other factors.
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  • Oct 01, 2023

    IZA/FCDO G²LM|LIC - Programme on Gender, Growth and Labour Markets in Low-Income Countries

    Online

    The IZA/FCDO Programme on Gender, Growth and Labour Markets in Low-Income Countries (G²LM|LIC) marks the extension of the successful IZA/DFID cooperation, which started as the Growth and Labour Markets in Low-Income Countries (GLM|LIC) programme in 2011. The extension aims at building a significant new body of evidence on gender, growth, and labour markets to help shape gender and labour market policies in low-income countries. Collaboration with researchers from low-income countries is strongly encouraged.

  • Oct 19, 2023 - Oct 20, 2023

    18th IZA & 5th IZA/CREST Conference: Labor Market Policy Evaluation

    Paris, Palaiseau

    The 18th IZA & 5th IZA/CREST Conference will be on the topic of Labor Market Policy Evaluation. This conference is an initiative of the Institute of Labor Economics (IZA) in Bonn in cooperation with CREST. The Program Committee invites submissions for about 12 presentations from academic researchers doing program evaluation research on policy issues related to the labor market. Papers that include innovative approaches or methodological contributions are of particular interest.

  • Oct 19, 2023 - Oct 20, 2023

    IZA/ECONtribute Workshop on the Economics of Education

    Bonn, Germany

    The 7th IZA Workshop on the Economics of Education will be helf on October 19 – 20, 2023, in person at IZA Bonn, Germany. The conference will combine invited presentations with an additional poster session aimed at local researchers. Presentations and keynote are available via Zoom for an external audience.

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