Wage and Employment Effects of Non-Binding Minimum Wages
AbstractCommon wisdom holds that the introduction of a non-binding minimum wage is irrelevant for actual wages and employment. Empirical and experimental research, however, has shown that the introduction of a minimum wage can raise even those wages that were already above the new minimum wage. In this paper, we analyze how these findings can be explained by theoretical wage bargaining models between unions and firms. While the Nash bargaining solution is unaffected by minimum wages below initially bargained wages, we show that such minimum wages can drive up wages – and be harmful to employment – when bargaining follows the Kalai-Smorodinsky solution.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3149.
Date of creation: 2010
Date of revision:
minimum wage; bargaining; Kalai-Smorodinsky solution;
Other versions of this item:
- Dittrich, Marcus & Knabe, Andreas, 2010. "Wage and employment effects of non-binding minimum wages," Discussion Papers 2010/15, Free University Berlin, School of Business & Economics.
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
- J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation
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