Polarization, employment and the minimum wage: Evidence from European local labor markets

•We study the effect of a decrease in the proportion of routine jobs on employment and participation rates, conditional on the level of the minimum wage, in European local labor markets.•OLS and IV strategy based on ICT capital price shocks and a shift share instrument.•Our estimates show that the polarization process has a negative impact on labor market outcomes in high minimum wage countries.•No impact is observed in low minimum wage countries. The labor market is becoming increasingly polarized as routine jobs disappear. In the flexible US labor market, this has had a limited impact on employment due to the strong employment growth in low-paying manual occupations for workers who are not able to reallocate to high-paying abstract occupations. This may not be the case in some rigid wage European economies, which are capable of creating fewer low-paying manual jobs. We study the effect of a decrease in the proportion of routine jobs on employment and participation rates, conditionally on the level of the minimum wage, in European local labor markets. Our OLS and IV estimates show that the polarization process has a negative impact on employment and participation rates in high minimum wage countries only.