Capital mobility, search unemployment and labor market policies: The case of minimum wages
AbstractIn 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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Date of creation: Mar 2013
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Capital mobility; Search unemployment; Minimum wage effi ciency;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-09-13 (All new papers)
- NEP-DGE-2013-09-13 (Dynamic General Equilibrium)
- NEP-LAB-2013-09-13 (Labour Economics)
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