Minimum Wage and Unemployment Among Young People and Women in Québec

This article develops a simple unemployment model which includes considerations on the impact of minimum wage changes on teenage and female unemployment in Québec. An unemployment equation is specified and estimated by ordinary least squares for bi-annual and monthly data from 1968 to 1975 for teenage unemployment and 1968 to 1977 for female unemployment. It relates unemployment of each group to total unemployment, a demographic variable (ratio of labour force in group i to total labour force) and a minimum wage variable (ratio of minimum wage to average hourly wage in manufacturing). The results show that minimum wage changes have contributed to the growth of unemployment rates of females and teenagers in the 70's. The impact is substantial: a 10% increase in the minimum wage change relative to the average hourly wage in manufacturing produces a 2.9 percentage points increase in the teenage unemployment rate and a 1.7 point increase in the female unemployment rate. We also consider that the impact of labour force growth on unemployment depends upon the minimum wage level. It is argued that indexation of the minimum wage, while contributing to growing unemployment during periods of rapid labour force expansion, is not creating additionnal pressures on unemployment during periods of moderate growth in the labour force. Interaction between labour force change and minimum wage is supported by our estimates. Finally the model is reexamined to show its limit and suggests further areas of research.