The impact of minimum wages on teenagers’ educational plans

In this paper, we exploit the introduction of the German statutory minimum wage to analyze the causal effects of minimum wages on educational plans of teenagers with different skill levels. Using detailed survey data in a difference-in-differences design, we find that in highly affected regions, teenagers aim for a higher school degree after the minimum wage introduction despite their exemption from the minimum wage law. This effect is driven by the adjustment of educational plans of low-skilled teenagers, who are most likely affected by the minimum wage when entering the labor market. We conclude that low-skilled teenagers consider labor market conditions in their schooling decision and try to compensate for lower employment prospects by increasing investments in human capital.