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On-the-Job Search, Minimum Wages, and Labor Market Outcomes in an Equilibrium Bargaining Framework

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  • Christopher Flinn
  • James Mabli

Abstract

We look at the impact of a binding minimum wage on labor market outcomes and welfare distributions in a partial equilibrium model of matching and bargaining in the presence of on-the-job search. We use two different specifications of the Nash bargaining problem. In one, firms engage in a Bertrand competition for the services of an individual, as in Postel-Vinay and Robin (2002). In the other, firms do not engage in such competitions, and the outside option used in bargaining is always the value of unemployed search. We estimate both bargaining specifications using a Method of Simulated Moments estimator applied to data from a recent wave of the Survey of Income and Program Participation. Even though individuals will be paid the minimum wage for a small proportion of their labor market careers, we find significant effects of the minimum wage on the ex ante value of labor market careers, particularly in the case of Bertrand competition between firms. An important futures goal of this research agenda is to develop tests capable of determining which bargaining framework is more consistent with observed patterns of turnover and wage change at the individual level.

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Bibliographic Info

Paper provided by Collegio Carlo Alberto in its series Carlo Alberto Notebooks with number 91.

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Length: 53 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:cca:wpaper:91

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Keywords: Minimum wage; On-the-job search; Renegotiation; Matching functions;

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References

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  1. DiNardo, John & Fortin, Nicole M & Lemieux, Thomas, 1996. "Labor Market Institutions and the Distribution of Wages, 1973-1992: A Semiparametric Approach," Econometrica, Econometric Society, vol. 64(5), pages 1001-44, September.
  2. Christopher J. Flinn & James J. Heckman, 1982. "Are Unemployment and Out of the Labor Force Behaviorally Distinct Labor Force States?," NBER Working Papers 0979, National Bureau of Economic Research, Inc.
  3. William J. Carrington & Bruce C. Fallick, 1999. "Minimum wage careers?," Finance and Economics Discussion Series 1999-46, Board of Governors of the Federal Reserve System (U.S.).
  4. Per Krusell & Lee E. Ohanian & Jose-Victor Rios-Rull & Giovanni L. Violante, 1997. "Capital-skill complementarity and inequality: a macroeconomic analysis," Staff Report 239, Federal Reserve Bank of Minneapolis.
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Cited by:
  1. Dube, Arindrajit & Lester, T. William & Reich, Michael, 2011. "Do Frictions Matter in the Labor Market? Accessions, Separations, and Minimum Wage Effects," Institute for Research on Labor and Employment, Working Paper Series qt4t3342nd, Institute of Industrial Relations, UC Berkeley.
  2. Chéron, Arnaud & Hairault, Jean-Olivier & Langot, François, 2008. "A quantitative evaluation of payroll tax subsidies for low-wage workers: An equilibrium search approach," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 817-843, April.
  3. Pedro Silos & Enchuan Shao & Shutao Cao, 2011. "Fixed-Term and Permanent Employment Contracts: Theory and Evidence," 2011 Meeting Papers 872, Society for Economic Dynamics.
  4. Chaudhuri, Sarbajit & Bandopadhyay, Titas Kumar, 2013. "Job-search and foreign capital inflow — A three-sector general equilibrium analysis," Economic Modelling, Elsevier, vol. 35(C), pages 159-169.
  5. Fernando Borraz & Nicolás Gonzalez Pampillón, 2011. "Assessing the Distributive Impact of More than Doubling the Minimum Wage: The Case of Uruguay," Documentos de Trabajo (working papers) 1711, Department of Economics - dECON.
  6. Engelhardt, Bryan & Fuller, David L., 2012. "Labor force participation and pair-wise efficient contracts with search and bargaining," Labour Economics, Elsevier, vol. 19(3), pages 388-402.
  7. repec:hal:journl:halshs-00270295 is not listed on IDEAS
  8. Cristian Bartolucci, 2011. "Credible Threats in a Wage Bargaining Model with on-the-job Search," Carlo Alberto Notebooks 203, Collegio Carlo Alberto.
  9. Bryan Engelhardt & David L. Fuller, 2009. "Efficient Labor Force Participation with Search and Bargaining," Working Papers 0909, College of the Holy Cross, Department of Economics, revised Nov 2009.
  10. Bandopadhyay, Titas Kumar & Chaudhuri, Sarbajit, 2011. "Job-search and FDI in a two-sector general equilibrium model," MPRA Paper 35564, University Library of Munich, Germany.
  11. Kai Liu, 2010. "Wage Risk, On-the-job Search and Partial Insurance," 2010 Meeting Papers 1136, Society for Economic Dynamics.
  12. Bartolucci, Cristian, 2012. "Business cycles and wage rigidity," Labour Economics, Elsevier, vol. 19(4), pages 568-583.
  13. Flabbi, Luca & Leonardi, Marco, 2010. "Sources of earnings inequality: Estimates from an on-the-job search model of the US labor market," European Economic Review, Elsevier, vol. 54(6), pages 832-854, August.
  14. Tjaden, Volker & Wellschmied, Felix, 2012. "Exploring the Causes of Frictional Wage Dispersion," IZA Discussion Papers 6299, Institute for the Study of Labor (IZA).
  15. Rasmus Lentz, 2014. "Optimal Employment Contracts with Hidden Search," NBER Working Papers 19988, National Bureau of Economic Research, Inc.

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