EXTENDED SUMMARY

The relationship between wages and employment constitutes a fundamental issue that influences the functioning of labour markets and economic growth. Neoclassical economic theory posits that wages are determined by the marginal productivity of labour and that firms adjust their demand for labour accordingly. However, high wage levels may reduce firms’ employment demand. Labour markets cannot be fully explained by wage mechanisms alone, as youth participation and employment present a complex structure shaped by limited experience, skill mismatches and transitional frictions. Therefore, reducing youth unemployment necessitates a more comprehensive approach that encompasses educational policies, structural reforms and public–private collaborations. Nevertheless, rather than developing extensive policies to tackle youth unemployment, many governments have attempted to regulate labour markets through minimum wage adjustments.

Minimum wage policies have long been debated among academics and policymakers because of their potential effects on youth unemployment. Different theoretical perspectives exist regarding how minimum wages influence the supply–demand equilibrium in labour markets. Some argue that minimum wages may hinder the entry of young individuals into the labour market and exacerbate unemployment, whereas others contend that they can stimulate employment by enhancing purchasing power. Empirical research highlights that economic and institutional differences across countries significantly shape this relationship.

This study employs a multicountry OECD panel dataset to analyse the relationship between youth unemployment rates and minimum wages. In line with Liu et al. (2016) and Otterby et al. (2024), the analysis jointly considers the minimum wage (log USD), the employment rate among individuals aged 25+ (percent) and real per-capita national income (log USD). The 25+ employment rate is used as an indicator of overall labour-market tightness and business-cycle conditions rather than a crowding-out channel, while per-capita income captures macro demand and cyclical forces linked to youth unemployment. Pre-estimation diagnostics indicate that the panel exhibits heterogeneity and is sensitive to first- and second-generation cross-sectional dependence, and that the series display different orders of stationarity. Consequently, the panel Granger-causality framework developed by Emirmahmutoglu and Kose (2011)—rooted in the Toda–Yamamoto approach and accommodating mixed integration orders and heterogeneous lag structures—was applied, with inference conducted under cross-sectional dependence. Throughout, “causality” is interpreted in the Granger-predictive sense, i.e., as a lead–lag forecasting relationship rather than a structural counterfactual effect.

The key findings indicate that the predictive effect of the minimum wage on youth unemployment varies across countries. Statistically significant Granger-predictive relationships are identified for Estonia, Hungary, Ireland, Lithuania, Poland and Portugal. In addition, the employment rate of individuals over 25 is found to predict youth unemployment in Chile, Ireland, Japan, Korea, Lithuania and Spain, which is consistent with labour-market tightness and demand conditions affecting youth outcomes. Moreover, strong Granger-predictive links between per-capita income and youth unemployment are observed in France, Hungary, Ireland, Japan and Lithuania. By contrast, no significant Granger predictability from any of the covariates to youth unemployment is detected for Greece, Luxembourg, the Netherlands, New Zealand, Slovakia, Slovenia, the United Kingdom, the United States and Türkiye. This does not imply the absence of structural effects. Rather, it suggests that youth unemployment may be shaped by offsetting or indirect mechanisms—for example participation shifts, hours and composition adjustments, informality, or concurrent changes in tax and social-security contribution wedges. The international literature emphasises such country- and context-specific heterogeneity, and the present findings reinforce this view.

In conclusion, regulating labour markets solely through wage policies represents a narrow neoclassical perspective and does not capture the complexity of labour dynamics. Addressing youth unemployment requires a broader, social-policy-oriented mix that mitigates labour-market inequalities and expands equitable access to opportunities. Beyond unemployment benefits and income support, priority measures include publicly funded education and skill-development programmes aligned with labour-market needs; high-quality vocational training; internships and apprenticeships with fair pay and full social protection; and robust social safety nets (healthcare, pension rights, childcare and housing support) that lower participation barriers for young people. Regional and sectoral targeting can be advanced through public investment, local hiring clauses in public procurement, and mission-oriented programmes in green and digital sectors. Support for youth entrepreneurship should focus on accessible public credit, grants and advisory services, while safeguarding decent-work standards and collective bargaining rights.

This study provides panel-wide evidence on the direction of predictability between minimum wages and youth unemployment in a heterogeneous setting and offers policy-relevant context. Because concurrent macro shocks and policy changes may mechanically amplify observed correlations, the findings should be interpreted within the identification limits of the Granger-predictability framework. Future research should complement these results with design-based counterfactual strategies (difference-in-differences, regression discontinuity, instrumental variables), incorporate common-factor controls, and examine disaggregated outcomes (hours, formal vs. informal status, sectoral and regional splits), especially in the context of green and digital transitions where new youth opportunities are emerging.