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Minimum Wage Spillover Effects and Social Welfare in a Model of Stochastic Job Matching

Author

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  • Panagiotis Nanos

    (Department of Economics, University of Sheffield, UK)

Abstract

In this paper, I carry out a welfare analysis of the minimum wage in the framework of a Diamond-Mortensen-Pissarides model with stochastic job matching. I explore the role of the minimum wage in a labour market with trading externalities and present the necessary and sufficient condition for a minimum wage hike to be efficiency-enhancing. In this context, I characterise minimum wage spillover effects and demonstrate that there is a direct link between the welfare effects and spillover effects of a minimum wage. This theoretical finding suggests that the welfare impact of minimum wage changes can be inferred from the empirical observation of spillover effects on the wage distribution.

Suggested Citation

  • Panagiotis Nanos, 2023. "Minimum Wage Spillover Effects and Social Welfare in a Model of Stochastic Job Matching," Working Papers 2023004, The University of Sheffield, Department of Economics.
    • Handle: RePEc:shf:wpaper:2023004
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    File URL: https://www.sheffield.ac.uk/economics/research/serps
    File Function: First version, January 2023
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    More about this item

    Keywords

    minimum wage; wage distribution; social welfare; policy evaluation;
    All these keywords.

    JEL classification:

    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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