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Minimum wage, on-the-job search and employment: On the sectoral and aggregate equilibrium effect of the mandatory minimum wage

  • Gavrel, Frédéric
  • Lebon, Isabelle
  • Rebière, Thérèse

We study the impact of a minimum wage in a segmented labor market in which workers are at different stages of their careers. At the end of a learning-by-doing period, workers paid the minimum wage quit “bad jobs” for better-paying “good jobs”, following an on-the-job search process with endogenous search intensity. A rise in the minimum wage reduces “bad jobs” creation and prompts workers to keep their “bad jobs” by reducing on-the-job search intensity. The ambiguous impact on unqualified employment replicates and explains the findings of several empirical studies. However, a minimum wage rise reduces overall employment and output.

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Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 29 (2012)
Issue (Month): 3 ()
Pages: 691-699

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Handle: RePEc:eee:ecmode:v:29:y:2012:i:3:p:691-699
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30411

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