Rational Expectations and the Puzzling No-Effect of the Minimum Wage
AbstractThis paper argues that expectations are an important element that need to be included into the analysis of the effects of the minimum wage on employment. We show in a standard matching model that the observed employment e¤ect is higher the lower is the likelihood associated with the minimum wage variation. On the other side, there is a significant anticipation e¤ect, ignored in the literature. This property is able to explain the controversial results found in the empirical studies. When the policy is anticipated, the effect at the time of the actual variation is small and potentially hard to identify. The model is tested on Spanish data, taking advantage of the unexpected change in the minimum wage following the election of Zapatero in 2004.
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Bibliographic InfoPaper provided by Uppsala University, Department of Economics in its series Working Paper Series with number 2010:10.
Length: 56 pages
Date of creation: 17 Jun 2010
Date of revision:
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Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
Web page: http://www.nek.uu.se/
More information through EDIRC
Minimum wage; Expectations; Heterogeneous matches;
Other versions of this item:
- Pinoli, Sara, 2008. "Rational Expectations and the Puzzling No-Effect of the Minimum Wage," MPRA Paper 11405, University Library of Munich, Germany.
- Pinoli, Sara, 2010. "Rational Expectations and the Puzzling No-Effect of the Minimum Wage," IZA Discussion Papers 4933, Institute for the Study of Labor (IZA).
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
- J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Expectations and the employment effect of minimum wages
by Economic Logician in Economic Logic on 2010-06-18 14:42:00
- Allegretto, Sylvia & Dube, Arindrajit & Reich, Michael, 2010. "Do Minimum Wages Really Reduce Teen Employment? Accounting for Heterogeneity and Selectivity in State Panel Data," Institute for Research on Labor and Employment, Working Paper Series qt7jq2q3j8, Institute of Industrial Relations, UC Berkeley.
- Hanna Frings, 2012. "The Employment Effect of Industry-Specific, Collectively-Bargained Minimum Wages," Ruhr Economic Papers 0348, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
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