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Minimum Wages in an Equilibrium Search Model with Diminishing Returns to Labor in Production

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Author Info
Swinnerton, Kenneth A

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Abstract

This article analyzes a minimum wage in a market with imperfect information and job search. It establishes that employment effects of a minimum wage do not generally indicate welfare effects. It shows that researchers interested in welfare consequences should ask two questions. First, is the existing minimum wage binding? Second, do some firms that would be bound by a new minimum wage presently experience labor shortages? If the answers to these questions are no and yes, respectively, this article supports the conclusion that a higher minimum wage is welfare improving, regardless of its effect on the unemployment rate. Copyright 1996 by University of Chicago Press.

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Publisher Info
Article provided by University of Chicago Press in its journal Journal of Labor Economics.

Volume (Year): 14 (1996)
Issue (Month): 2 (April)
Pages: 340-55
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Handle: RePEc:ucp:jlabec:v:14:y:1996:i:2:p:340-55

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  1. Gerard J. van den Berg, 1999. "Multiple Equilibria and Minimum Wages in Labor Markets with Informational Frictions and Heterogeneous Production Technologies," Tinbergen Institute Discussion Papers 99-085/3, Tinbergen Institute. [Downloadable!]
  2. Arantza Gorostiage & Juan F. Rubio-Ramírez, 2004. "Optimal Minimum Wage in a Competitive Economy," DFAEII Working Papers 200407, University of the Basque Country - Department of Foundations of Economic Analysis II. [Downloadable!]
    Other versions:
  3. Carol Ann Rogers & Kenneth A. Swinnerton, 2003. "A Theory of Exploitative Child Labor," Development and Comp Systems 0306005, EconWPA. [Downloadable!]
    Other versions:
  4. Berg, Gerard J. van den, 1999. "Multiple equilibria and minimum wages in labor markets with informational frictions and heterogeneous production technologies," Serie Research Memoranda 0044, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics. [Downloadable!]
    Other versions:
  5. Flinn, Christopher J., 2003. "Minimum Wage Effects on Labor Market Outcomes under Search with Bargaining," IZA Discussion Papers 949, Institute for the Study of Labor (IZA). [Downloadable!]
  6. Luis Eduardo Arango & Paula Herrera & Carlos Esteban Posada, 2007. "El salario mínimo: aspectos generales sobre los casos de Colombia y otros paises," BORRADORES DE ECONOMIA 002544, BANCO DE LA REPÚBLICA. [Downloadable!]
    Other versions:
  7. David S. Lee & Emmanuel Saez, 2008. "Optimal Minimum Wage Policy in Competitive Labor Markets," Working Papers 1105, Princeton University, Department of Economics, Industrial Relations Section.. [Downloadable!]
  8. Robin Boadway & Katherine Cuff, 1999. "A Minimum Wage Can Be Welfare-Improving and Employment-Enhancing," Cahiers de recherche CREFE / CREFE Working Papers 72, CREFE, Université du Québec à Montréal. [Downloadable!]
    Other versions:
  9. David Lee & Emmanuel Saez, 2008. "Optimal Minimum Wage Policy in Competitive Labor Markets," NBER Working Papers 14320, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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