Minimum Wage Effects on Labor Market Outcomes under Search with Bargaining
AbstractBuilding upon a continuous-time model of search with Nash bargaining in a stationary environment, we analyze the effect of changes in minimum wages on labor market outcomes and welfare. While minimum wage increases invariably lead to employment losses in our model, they may be welfare-improving to labor market participants using any one of a number of welfare criteria. A key determinant of the welfare impact of a minimum wage increase is the Nash bargaining power parameter. We discuss identification of this model using Current Population Survey data on accepted wages and unemployment durations, and demonstrate that key parameters are not identified when the distribution of match values belongs to a location-scale family. By incorporating a limited amount of information from the demand side of the market, we are able to obtain credible and precise estimates of all primitive parameters, including bargaining power. Direct estimates of the welfare impact of the minimum wage increase from $4.25 to $4.75 in 1996 provide limited evidence of a small improvement. Using estimates of the primitive parameters we show that more substantial welfare gains for labor market participants could have been obtained by doubling the minimum wage rate in 1996, though at the cost of a perhaps unacceptably high unemployment rate.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 949.
Length: 60 pages
Date of creation: Dec 2003
Date of revision:
Contact details of provider:
Postal: IZA, P.O. Box 7240, D-53072 Bonn, Germany
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org
Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany
Find related papers by JEL classification:
- C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
- J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
This paper has been announced in the following NEP Reports:
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.:
- Flinn, C.J., 1993.
"Equilibrium Wage and Dismissal Processes,"
93-38, C.V. Starr Center for Applied Economics, New York University.
- Peter Kooreman & Arie Kapteyn, 1990.
"On the Empirical Implementation of Some Game Theoretic Models of Household Labor Supply,"
Journal of Human Resources,
University of Wisconsin Press, vol. 25(4), pages 584-598.
- Kooreman, P. & Kapteyn, A.J., 1990. "On the empirical implementation of some game theoretic models of household labor supply," Open Access publications from Tilburg University urn:nbn:nl:ui:12-364364, Tilburg University.
- Meyer, Robert H & Wise, David A, 1983.
"The Effects of the Minimum Wage on the Employment and Earnings of Youth,"
Journal of Labor Economics,
University of Chicago Press, vol. 1(1), pages 66-100, January.
- Robert H. Meyer & David A. Wise, 1982. "The Effects of the Minimum Wage on the Employment and Earnings of Youth," NBER Working Papers 0849, National Bureau of Economic Research, Inc.
- Rubinstein, Ariel, 1982.
"Perfect Equilibrium in a Bargaining Model,"
Econometric Society, vol. 50(1), pages 97-109, January.
- David Neumark & William Wascher, 1995.
"Minimum wage effects on school and work transitions of teenagers,"
Finance and Economics Discussion Series
95-7, Board of Governors of the Federal Reserve System (U.S.).
- Neumark, David & Wascher, William, 1995. "Minimum-Wage Effects on School and Work Transitions of Teenagers," American Economic Review, American Economic Association, vol. 85(2), pages 244-49, May.
- Robert H. Meyer & David A. Wise, 1981.
"Discontinuous Distributions and Missing Persons: The Minimum Wage and Unemployed Youth,"
NBER Working Papers
0711, National Bureau of Economic Research, Inc.
- Meyer, Robert H & Wise, David A, 1983. "Discontinuous Distributions and Missing Persons: The Minimum Wage and Unemployed Youth," Econometrica, Econometric Society, vol. 51(6), pages 1677-98, November.
- Cahuc, Pierre & Postel-Vinay, Fabien & Robin, Jean-Marc, 2003.
"Wage Bargaining with On-The-Job Search: Theory and Evidence,"
CEPR Discussion Papers
4154, C.E.P.R. Discussion Papers.
- Pierre Cahuc & Fabien Postel-Vinay & Jean-Marc Robin, 2006. "Wage Bargaining with On-the-Job Search: Theory and Evidence," Econometrica, Econometric Society, vol. 74(2), pages 323-364, 03.
- Pierre Cahuc & Fabien Postel-Vinay & Jean-Marc Robin, 2003. "Wage bargaining with on-the-job search : theory and evidence," Research Unit Working Papers 0212, Laboratoire d'Economie Appliquee, INRA.
- Alan Manning, 1994.
"How do we Know that Real Wages are Too High?,"
CEP Discussion Papers
dp0195, Centre for Economic Performance, LSE.
- Flinn, Christopher J, 1986. "Wages and Job Mobility of Young Workers," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages S88-S110, June.
- Lang, Kevin, 1987. "Pareto Improving Minimum Wage Laws," Economic Inquiry, Western Economic Association International, vol. 25(1), pages 145-58, January.
- James B. Rebitzer & Lowell J. Taylor, 1991.
"The Consequences of Minimum Wage Laws: Some New Theoretical Ideas,"
NBER Working Papers
3877, National Bureau of Economic Research, Inc.
- Rebitzer, James B. & Taylor, Lowell J., 1995. "The consequences of minimum wage laws Some new theoretical ideas," Journal of Public Economics, Elsevier, vol. 56(2), pages 245-255, February.
- Eckstein, Z. & Wolpin, K.I., 1995. "Estimating the Effect of Labor Market Discrimination on Black-White Differences in Wage Offers Using a Search- Matching-Bargaining Model," Papers 24-95, Tel Aviv - the Sackler Institute of Economic Studies.
- James J. Heckman & Christopher J. Flinn, 1982.
"New Methods for Analyzing Structural Models of Labor Force Dynamics,"
NBER Working Papers
0856, National Bureau of Economic Research, Inc.
- Flinn, C. & Heckman, J., 1982. "New methods for analyzing structural models of labor force dynamics," Journal of Econometrics, Elsevier, vol. 18(1), pages 115-168, January.
- Swinnerton, Kenneth A, 1996. "Minimum Wages in an Equilibrium Search Model with Diminishing Returns to Labor in Production," Journal of Labor Economics, University of Chicago Press, vol. 14(2), pages 340-55, April.
- Dickens, Richard & Machin, Stephen & Manning, Alan, 1998.
"Estimating the effect of minimum wages on employment from the distribution of wages: A critical view,"
Elsevier, vol. 5(2), pages 109-134, June.
- Richard Dickens & Stephen Machin & Alan Manning, 1994. "Estimating the Effect of Minimum Wages on Employment from the Distribution of Wages: A Critical View," CEP Discussion Papers dp0203, Centre for Economic Performance, LSE.
- Dey, M. S. & Flinn, C. J., 2000.
"An Equilibrium Model of Health Insurance Provision and Wage Determination,"
00-18, C.V. Starr Center for Applied Economics, New York University.
- Matthew S. Dey & Christopher J. Flinn, 2005. "An Equilibrium Model of Health Insurance Provision and Wage Determination," Econometrica, Econometric Society, vol. 73(2), pages 571-627, 03.
- David Neumark & William Wascher, 1992. "Employment effects of minimum and subminimum wages: Panel data on state minimum wage laws," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 46(1), pages 55-81, October.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak).
If references are entirely missing, you can add them using this form.