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On the heterogeneous short‐term effects of minimum wages on labor demand

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  • Juan A. Correa
  • Francisco Parro

Abstract

A strand of the literature documents no effects or even positive effects of a higher minimum wage on employment. This evidence is frequently linked to the existence of monopsonistic labor markets or search frictions. However, empirical studies show that these findings could be related to a low short‐term minimum wage–employment elasticity in a competitive labor market. We show that mixed theoretical employment effects of a minimum wage policy can be predicted in the short term in assignment economies with price‐taker agents and no search frictions.

Suggested Citation

  • Juan A. Correa & Francisco Parro, 2020. "On the heterogeneous short‐term effects of minimum wages on labor demand," International Journal of Economic Theory, The International Society for Economic Theory, vol. 16(2), pages 184-195, June.
  • Handle: RePEc:bla:ijethy:v:16:y:2020:i:2:p:184-195
    DOI: 10.1111/ijet.12236
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