This paper highlights the social costs from non-price rationing of the labour force due to the minimum wage. By short-circuiting the ability of low reservation-wage workers to underbid high-reservation wage workers, the minimum wage interferes with the market's basic function of grouping the lowest cost workers with the highest productivity firms. The present paper models the deadweight loss that society bears when high reservation-cost workers displace low reservation-cost workers. When firms can evade part or all of the minimum wage, an extra deadweight loss arises. Firms with high evasive ability but low productivity may displace firms with low evasive ability but high productivity.
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Paper provided by EconWPA in its series Labor and Demography with number
0112001.
Length: 39 pages Date of creation: 07 Dec 2001 Date of revision: Handle: RePEc:wpa:wuwpla:0112001
Note: Type of Document - PDF; prepared on IBM PC; to print on HP/PostScript; pages: 39; figures: included/request from author/draw your own. PDF document may be viewed or printed Contact details of provider: Web page: http://129.3.20.41
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