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Participation, Recruitment Selection, and the Minimum Wage

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  • Frédéric Gavrel

Abstract

In this paper, we re-examine the efficiency of participation with heterogeneous workers in a search-matching model with bargained wages and free entry. Assuming that firms hire their best applicants, we show that participation is always too low. The reason for this is a hold-up phenomenon: to be active, a worker must pay the entire search cost whereas part of the gain from this investment goes to the firm. As a consequence, introducing a (small) minimum wage raises participation, job creation, and employment. Therefore, net aggregate income of the economy is increased.

Suggested Citation

  • Frédéric Gavrel, 2015. "Participation, Recruitment Selection, and the Minimum Wage," Scandinavian Journal of Economics, Wiley Blackwell, vol. 117(4), pages 1281-1305, October.
    • Handle: RePEc:bla:scandj:v:117:y:2015:i:4:p:1281-1305
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    File URL: http://hdl.handle.net/10.1111/sjoe.12106
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    Cited by:

    1. Frédéric Gavrel & Thérèse Rebière, 2015. "On the Equilibrium and Welfare Consequences of Going Ahead of the Smiths," Working Papers halshs-01242504, HAL.
    2. Ana Rute Cardoso, 2019. "Long‐Term Impact of Minimum Wages on Workers’ Careers: Evidence from Two Decades of Longitudinal Linked Employer–Employee Data," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(4), pages 1337-1380, October.
    3. Frédéric Gavrel & Thérèse Rebière, 2018. "On the equilibrium and welfare consequences of getting ahead of the Smiths," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 20(2), pages 257-270, April.

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