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Collusion at the Non-Binding Minimum Wage: An Automatic Stabilizer?

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  • Natalya Y. Shelkova

    (Guilford College and University of Connecticut)

Abstract

This paper examines unemployment dynamics through the lens of a wage-posting model with two sectors and two types of workers. The model assumptions include collusion at a non-binding minimum wage, costly entry and intersectoral labor mobility. Model simulations demonstrate that collusion at a non-binding minimum wage induces entry into the low-wage sector. This dampens the overall negative employment impact of economic downturns. The excess of low-wage vacancies has shown not only to secure low unemployment rates for the low-skilled workers, but also to provide employment opportunities for the high-skilled when their industries substantially decline.

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File URL: http://www.econ.uconn.edu/working/2009-41.pdf
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Bibliographic Info

Paper provided by University of Connecticut, Department of Economics in its series Working papers with number 2009-41.

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Length: 40 pages
Date of creation: Dec 2009
Date of revision:
Handle: RePEc:uct:uconnp:2009-41

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Postal: University of Connecticut 341 Mansfield Road, Unit 1063 Storrs, CT 06269-1063
Phone: (860) 486-4889
Fax: (860) 486-4463
Web page: http://www.econ.uconn.edu/
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Related research

Keywords: unemployment; search; minimum wage; collusion;

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  1. Albrecht, James & van den Berg, Gerard J & Vroman, Susan, 2007. "The aggregate labor market effects of the Swedish knowledge lift program," Working Paper Series 2008:1, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  2. Steven Davis & R Jason Faberman & John Haltiwanger & Ron Jarmin & Javier Miranda, 2008. "Business Volatility, Job Destruction, and Unemployment," Working Papers 08-26, Center for Economic Studies, U.S. Census Bureau.
  3. Bhaskar, V. & To, Ted, 2003. "Oligopsony and the distribution of wages," European Economic Review, Elsevier, vol. 47(2), pages 371-399, April.
  4. Natalya Y. Shelkova, 2008. "Low-Wage Labor Markets and the Power of Suggestion," Working papers 2008-33, University of Connecticut, Department of Economics, revised Dec 2008.
  5. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-73, May.
  6. Joel Shapiro, 2001. "Income taxation in a frictional labor market," Economics Working Papers 559, Department of Economics and Business, Universitat Pompeu Fabra.
  7. Albrecht, James & Tan, Serene & Gautier, Pieter & Vroman, Susan, 2004. "Matching with multiple applications revisited," Economics Letters, Elsevier, vol. 84(3), pages 311-314, September.
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