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Analyzing the effects of minimum wages: a microeconomic approach

Author

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  • Clemens Thielen

    (Technical University of Munich)

  • Philipp Weinschenk

    (University of Kaiserslautern-Landau)

Abstract

We use a microeconomic approach to analyze the effects of minimum wages. Agents are allowed to have different productivities at different principals as well as different costs of working. We obtain several new and interesting effects. Minimum wages could influence the generated surplus when leaving employment unaffected, and destroy jobs that generate relatively high levels of surplus when affecting employment. Furthermore, minimum wages could harm agents even if these stay employed, while principals could benefit from them. We provide a complete characterization of the effects and show that these hold independently of the specific bargaining procedure and information structure.

Suggested Citation

  • Clemens Thielen & Philipp Weinschenk, 2025. "Analyzing the effects of minimum wages: a microeconomic approach," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 79(3), pages 945-991, May.
    • Handle: RePEc:spr:joecth:v:79:y:2025:i:3:d:10.1007_s00199-024-01607-3
    DOI: 10.1007/s00199-024-01607-3
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    More about this item

    Keywords

    Minimum wages; Principal-agent model; Costs of working; Welfare effects;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law

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