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Wage Bargaining and Minimum Wages in a Search–Matching Model

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  • Marcus Dittrich

    (Faculty of Applied Economics, Deggendorf Institute of Technology, 94469 Deggendorf, Germany2CESifo, Munich, Germany)

Abstract

In this paper, we analyze the introduction of a nonbinding minimum wage in a search–matching model with wage bargaining. Applying the Kalai–Smorodinsky bargaining solution instead of the commonly applied Nash solution, we provide a theoretical explanation for spillover effects of minimum wages on other wages higher up in the wage distribution. The labor market equilibrium in the Kalai–Smorodinsky solution with a minimum wage is characterized by lower market tightness, a higher unemployment rate, and lower vacancy rate than the equilibrium in the Nash solution. Moreover, we show that a nonbinding minimum wage can increase social welfare.

Suggested Citation

  • Marcus Dittrich, 2021. "Wage Bargaining and Minimum Wages in a Search–Matching Model," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 23(04), pages 1-14, December.
    • Handle: RePEc:wsi:igtrxx:v:23:y:2021:i:04:n:s0219198922500049
    DOI: 10.1142/S0219198922500049
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    More about this item

    Keywords

    Matching model; minimum wage; spillover effect; Kalai–Smorodinsky bargaining;
    All these keywords.

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy

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