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Wage Dispersion and the Minimum Wage Spike in a Search Economy With Wage-Posting

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  • Natalya Shelkova

Abstract

Wage distributions in economies with mandated minimum wage exhibit both wage dispersion and wage clustering known as the minimum wage spike. The paper builds a search-theoretic model that reconciles the two phenomena simultaneously under the assumptions of wage-posting, urn-ball matching, rm heterogeneity, and wage-dependent search cost. Numerical simulations demonstrate the potency of the model. A non-degenerate minimum wage spike and wage dispersion are obtained. The model also shows that a higher, non-binding minimum wage can be associated with greater employment (and higher wages), previously found in empirical studies.

Suggested Citation

  • Natalya Shelkova, 2016. "Wage Dispersion and the Minimum Wage Spike in a Search Economy With Wage-Posting," Review of Economics and Institutions, Università di Perugia, vol. 7(1).
    • Handle: RePEc:pia:review:v:7:y:2016:i:1:n:3
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    More about this item

    Keywords

    search; wage-posting; minimum wage; minimum wage spike; wage dispersion.;
    All these keywords.

    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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