Bridging or Widening Gaps? Minimum Wage Effects on Early Labor Market Outcomes Among Low-Income Youth

Background and Purpose: The transition into the labor market is a critical phase shaping long-term employment trajectories, yet low-income youth face persistent barriers to stable employment. Early experiences of unemployment or precarious work can generate lasting “scarring” effects, reinforcing inequality. Minimum wage policy is widely debated as a tool to improve labor market outcomes, but its effects on youth remain contested, with mixed evidence on employment impacts. This study aims to assess the role of Seattle’s minimum wage policy in shaping inequality in early labor market outcomes among low-income youth. Specifically, it examines how minimum wage increases in Seattle affect labor market entry and early employment outcomes for low-income youth relative to their peers.

Methods: We use a quasi-experimental difference-in-differences design to estimate the causal effects of Seattle’s minimum wage increases on labor market entry and early labor market outcomes, comparing pre- and post-policy changes between Seattle and non-Seattle areas. The analysis draws on the Washington Merged Longitudinal Administrative Data (WMLAD), a unique dataset developed to evaluate the Seattle minimum wage ordinance. The sample includes young workers aged 16–24, with low-income status defined based on prior participation in means-tested programs.

First, we estimate the effects of minimum wage increases on employment entry among low-income youth using an event study difference-in-differences approach. Second, we examine the policy’s effects on early labor market outcomes – including hours worked, earnings, employment retention, and short-term trajectories – among low-income youth at first entry. Using a triple-differences design, we compare outcomes between treated and control areas before and after the policy, and across income groups.

Results: Minimum wage increases are associated with a modest rise in entry rates among low-income youth; however, this appears to be driven largely by a decline in the size of the low-income population rather than direct policy effects on employment entry. Entry incidence shows small increases (approximately 1-2 percentage points) in some post-policy periods in Seattle relative to non-Seattle areas.

For early labor market outcomes at entry among first-time entrants, we find no consistent evidence of changes in hours worked or earnings following the policy. Over the first year after entry, initial increases in hours worked and earnings during the first two quarters are not sustained, coinciding with declines in employment retention. Triple-differences estimates indicate that, relative to non-low-income youth, effects on hours are largely insignificant, while reductions in retention contribute to widening earnings gaps.

Conclusions and Implications: These findings suggest that Seattle’s minimum wage increases do not consistently improve early labor market outcomes for low-income youth and may have limited effects on reducing inequality. While some changes in entry are observed, these appear to be driven in part by shifts in population composition rather than clear policy effects. Moreover, declines in employment retention may contribute to emerging earnings disparities.

These results underscore the importance of considering heterogeneous and distributional effects of labor market policies. Future research should examine the mechanisms underlying these patterns and explore complementary policies that may better support the labor market transitions of disadvantaged youth.