Rational Expectations and the Puzzling No-Effect of the Minimum Wage
AbstractThis paper argues that expectations are an important element that needs 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 effect is higher the lower is the likelihood associated with the minimum wage variation. On the other side, there is a significant anticipation effect, 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 Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4933.
Length: 58 pages
Date of creation: May 2010
Date of revision:
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Other versions of this item:
- Pinoli, Sara, 2010. "Rational Expectations and the Puzzling No-Effect of the Minimum Wage," Working Paper Series 2010:10, Uppsala University, Department of Economics.
- Pinoli, Sara, 2008. "Rational Expectations and the Puzzling No-Effect of the Minimum Wage," MPRA Paper 11405, University Library of Munich, Germany.
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-05-22 (All new papers)
- NEP-DGE-2010-05-22 (Dynamic General Equilibrium)
- NEP-LAB-2010-05-22 (Labour Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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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.
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