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

Listed author(s):
  • 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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File URL: http://www.sciencedirect.com/science/article/pii/S0264999312000107
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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
DOI: 10.1016/j.econmod.2012.01.005
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30411

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  1. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, December.
  2. Thomas Lubik & Michael Krause, 2004. "On-the-Job Search and the Cyclical Dynamics of the Labor Market," Economics Working Paper Archive 513, The Johns Hopkins University,Department of Economics.
  3. Frédéric Gavrel & Isabelle Lebon & Therese Rebière, 2010. "Career Paths, Unemployment, and the Efficiency of the Labor Market: Should Youth Employment Be Subsidized?," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 12(3), pages 533-560, 06.
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  17. Alan B. Krueger & David Card, 2000. "Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania: Reply," American Economic Review, American Economic Association, vol. 90(5), pages 1397-1420, December.
  18. Cremieux, P.Y. & Fortin, P. & Storer, P. & Van Audenrode, M., 1995. "L'incidence de l'assurance-chomage sur les salaires, l'intensite de la recherche d'emploi et la probabilite de reemploi," Papers 27, Gouvernement du Canada - Human Resources.
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