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The Endogenous Determination of Minimum Wage

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Author Info
Gil S. Epstein () (Bar-Ilan University, Ramat-Gan, Israel, CEPR, London and IZA, Bonn)
Shmuel Nitzan (Bar-Ilan University, Ramat-Gan, Israel)

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Abstract

In this paper we study the endogenous determination of minimum wage employing a political-economic game-theoretic approach. A major objective of the paper is to clarify the crucial role of the strength of the workers’ union and of political culture on the determination of the minimum wage. In general, the equilibrium minimum wage differs from that postulated in the literature. In our uncertain environment the optimal minimum wage from the workers’ union point of view is lower than the level that maximizes its objective function in a certain environment where there is no opposition to the proposed minimum wage. We establish that a political culture that assigns a positive weight to the public well being can give rise to a wage that equals or exceeds these levels.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 73.

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Length: 21 pages
Date of creation: Nov 1999
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Handle: RePEc:iza:izadps:dp73

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Related research
Keywords: Minimum wage; endogenous determination; political culture; public policy;

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Find related papers by JEL classification:
J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
J5 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining
J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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References listed on IDEAS
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.:
  1. Bernheim, B Douglas & Whinston, Michael D, 1986. "Common Agency," Econometrica, Econometric Society, vol. 54(4), pages 923-42, July. [Downloadable!] (restricted)
  2. Appelbaum, Elie & Katz, Eliakim, 1987. "Seeking Rents by Setting Rents: The Political Economy of Rent Seeking," Economic Journal, Royal Economic Society, vol. 97(387), pages 685-99, September. [Downloadable!] (restricted)
  3. Rodrik, Dani, 1986. "Tariffs, subsidies, and welfare with endogenous policy," Journal of International Economics, Elsevier, vol. 21(3-4), pages 285-299, November. [Downloadable!] (restricted)
  4. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-50, September. [Downloadable!] (restricted)
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  5. Rama, Martin & Tabellim, Guido, 1998. "Lobbying by capital and labor over trade and labor market policies," European Economic Review, Elsevier, vol. 42(7), pages 1295-1316, July. [Downloadable!] (restricted)
  6. Rama, Martin, 1997. " Imperfect Rent Dissipation with Unionized Labor," Public Choice, Springer, vol. 93(1-2), pages 55-75, October. [Downloadable!] (restricted)
  7. Oren M. Levin-Waldman, 1998. "Exploring the Politics of the Minimum Wage," Macroeconomics 9805010, EconWPA. [Downloadable!]
  8. Saint-Paul, Gilles, 1998. "A framework for analyzing the political support for active labor market policy," Journal of Public Economics, Elsevier, vol. 67(2), pages 151-165, February. [Downloadable!] (restricted)
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  9. Van Long, Ngo & Vousden, Neil, 1991. "Protectionist responses and declining industries," Journal of International Economics, Elsevier, vol. 30(1-2), pages 87-103, February. [Downloadable!] (restricted)
  10. Martín Rama & Guido Tabellini, . "Lobbying by Capital and Labor over Trade and Labor Market Policies," Working Papers 94, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  11. Card, David & Krueger, Alan B, 1994. "Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania," American Economic Review, American Economic Association, vol. 84(4), pages 772-93, September. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  1. Maya Bacache-Beauvallet & Etienne Lehmann, 2005. "Minimum Wage or Negative Income Tax: Why Skilled Workers May Favor Wage Rigidities," IZA Discussion Papers 1570, Institute for the Study of Labor (IZA). [Downloadable!]
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