easily than high-skilled workers by other types of inputs when the relative cost of labor rises. These workers are therefore more likely to lose jobs as a result of increases in the minimum wage.<sup>20</sup>

**High minimum wages may have distributional effects, resulting in increased earnings for employed workers but potential job losses among younger and older unskilled workers.** On the one hand, minimum wages can be effective in reducing income inequality and poverty because it directly increases the earnings of low wage workers. On the other hand, empirical evidence across various countries indicates that higher minimum wages lead to fewer jobs, particularly among the least-skilled workers. Therefore, we analyze this issue by providing a decomposition of potentially affected groups by skill level (i.e., education level, occupation) and by demographic characteristics. We also analyze whether minimum wage workers are more likely to come from poor households or, in contrast, are young people from households at the top of the welfare distribution.

Who is most likely to be affected?

**Because employed workers with earnings between the current minimum wage and the proposed minimum wage (250 euros) are most likely to be affected, we profile this group to assess potential distributional impacts.**

**The percentage of workers with earnings between the current and the proposed minimum wage is higher among teenagers (age 15-19), women, and unskilled workers.** We estimate that in 2018, 8.2 percent of workers earned between the current minimum wage and the proposed minimum wage (henceforth we compare earnings with the proposed net minimum wage deflated with CPI).<sup>21</sup> Figure 8 shows that the share of potentially affected workers is especially high among teenagers aged 15-19 (23.3 percent). One explanation for why minimum wage disproportionally affects youth is because the increase in minimum wage for those younger than 35 is significantly larger than for older workers. About 20.7 percent of workers without secondary levels of education are potentially affected by the policy, compared to 10.0 percent of those with secondary education and 2.6 percent with post-secondary education. Women are more likely to be affected than men (9.4 percent vs. 7.8 percent). We also analyze whether breadwinners are more likely to be affected, where breadwinner is defined as the sole worker in a household. Our results suggest that unique breadwinners are less likely to be affected by the policy than non-unique breadwinners (6.5 percent vs. 9.5 percent). In 2018, only 0.82 percent of workers reported earnings lower than the minimum wage (almost perfect compliance).

**As depicted in Figure 9, the share of the affected group is higher among private-sector workers, workers holding informal-sector jobs, and workers holding permanent contracts** . Given the low share of potentially affected workers in the public sector, the impact on the wage bill in the public sector is likely small.<sup>22</sup> Figures 10 shows that the minimum wage is more likely to affect agriculture and commerce sectors, and in particular agricultural and service and market sales occupations, which are industries with a higher proportion of low-wage workers.

> 20 See a review of simple theoretical models in Neumark (2014).

> 21 For estimation we use wages imputed from LFS as described in Section 2. Because wages were reported in brackets, this estimate might vary from 3.5 percent to 11.7 percent, depending on the imputation technique.

> 22 Additional impacts on consumer prices may also occur as a result of rising minimum wages, but these effects go beyond the scope of this paper.

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