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The effect of minimum wages on employment in the presence of productivity fluctuations

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  • Asahi Sato

Abstract

Traditionally, the impact of minimum wages on employment has been studied, and it is generally believed to have a negative effect. Yet, some recent studies have shown that the impact of minimum wages on employment can sometimes be positive. In addition, certain recent proposals set a higher minimum wage than the wage earned by some high-productivity workers. However, the impact of minimum wages on employment has been primarily studied on low-skilled workers, whereas there is limited research on high-skilled workers. To address this gap and examine the effects of minimum wages on high-productivity workers' employment, I construct a macroeconomic model incorporating productivity fluctuations, incomplete markets, directed search, and on-the-job search and compare the steady-state distributions between the baseline model and the model with a minimum wage. As a result, binding minimum wages increase the unemployment rate of both low and high-productivity workers.

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  • Asahi Sato, 2025. "The effect of minimum wages on employment in the presence of productivity fluctuations," Papers 2502.18261, arXiv.org, revised Feb 2025.
    • Handle: RePEc:arx:papers:2502.18261
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    1. Zvi Eckstein & Suqin Ge & Barbara Petrongolo, 2011. "Job and wage mobility with minimum wages and imperfect compliance," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 26(4), pages 580-612, June.
    2. Joseph J. Sabia & Richard V. Burkhauser & Benjamin Hansen, 2012. "Are the Effects of Minimum Wage Increases Always Small? New Evidence from a Case Study of New York State," ILR Review, Cornell University, ILR School, vol. 65(2), pages 350-376, April.
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