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Capital mobility, search unemployment and labor market policies: The case of minimum wages

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  • Frédéric Gavrel

    (CREM - Centre de Recherche en Economie et Management - CNRS : UMR6211 - Université de Rennes 1 - Université de Caen Basse-Normandie, TEPP - Travail, Emploi et Politiques Publiques - CNRS : FR3435 - Université Paris-Est Marne-la-Vallée (UPEMLV))

Abstract

In order to study the in uence of capital mobility on labor market policy, this paper adapts the search-matching approach to an economy with an exogenous stock of capital. Contrary to most matching models, laissez-faire is unavoidably ine cient. However, public policy can neutralize this market failure by implementing a minimum wage. This result leads us to address a much-debated issue: Does capital mobility constrain labor market policies when governments cannot cooperate? To that end we extend the analysis to a n-country symmetric model where the setting of minimum wages results from a Nash non-cooperative game. We nd that, in this context, capital mobility does not a ect the e ciency of public policy.

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Paper provided by HAL in its series Working Papers with number halshs-00856270.

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Date of creation: Mar 2013
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Handle: RePEc:hal:wpaper:halshs-00856270

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Keywords: Capital mobility; Search unemployment; Minimum wage effi ciency;

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  1. Daron Acemoglu & Robert Shimer, 1998. "Holdups and Efficiency with Search Frictions," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 98-14, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Gavrel, Frédéric, 2011. "On the efficiency of participation with vertically differentiated workers," Economics Letters, Elsevier, Elsevier, vol. 112(1), pages 100-102, July.
  3. Blanchard, Olivier J & Tirole, Jean, 2007. "The Joint Design of Unemployment Insurance and Employment Protection. A First Pass," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6127, C.E.P.R. Discussion Papers.
  4. Wildasin, D.E., 1987. "Nash equilibria in models of fiscal competition," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 1987020, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Zodrow, George R. & Mieszkowski, Peter, 1986. "Pigou, Tiebout, property taxation, and the underprovision of local public goods," Journal of Urban Economics, Elsevier, vol. 19(3), pages 356-370, May.
  6. Bean, Charles & Pissarides, Christopher, 1993. "Unemployment, consumption and growth," European Economic Review, Elsevier, Elsevier, vol. 37(4), pages 837-854, May.
  7. Costas Azariadis & Christopher Pissarides, 2007. "Unemployment dynamics with international capital mobility," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 2476, London School of Economics and Political Science, LSE Library.
  8. Hersoug, Tor, 1984. "Union Wage Responses to Tax Changes," Oxford Economic Papers, Oxford University Press, vol. 36(1), pages 37-51, March.
  9. Grout, Paul A, 1984. "Investment and Wages in the Absence of Binding Contracts: A Nash Bargining Approach," Econometrica, Econometric Society, Econometric Society, vol. 52(2), pages 449-60, March.
  10. Wilson, John D., 1985. "Optimal property taxation in the presence of interregional capital mobility," Journal of Urban Economics, Elsevier, vol. 18(1), pages 73-89, July.
  11. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262161877, December.
  12. Christopher J. Flinn, 2006. "Minimum Wage Effects on Labor Market Outcomes under Search, Matching, and Endogenous Contact Rates," Econometrica, Econometric Society, Econometric Society, vol. 74(4), pages 1013-1062, 07.
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