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On-the-Job Search, Minimum Wages, and Labor Market Outcomes in an Equilibrium Bargaining Framework

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  • Christopher Flinn
  • James Mabli

Abstract

We look at the impact of a binding minimum wage on labor market outcomes and welfare distributions in a partial equilibrium model of matching and bargaining in the presence of on-the-job search. We use two different specifications of the Nash bargaining problem. In one, firms engage in a Bertrand competition for the services of an individual, as in Postel-Vinay and Robin (2002). In the other, firms do not engage in such competitions, and the outside option used in bargaining is always the value of unemployed search. We estimate both bargaining specifications using a Method of Simulated Moments estimator applied to data from a recent wave of the Survey of Income and Program Participation. Even though individuals will be paid the minimum wage for a small proportion of their labor market careers, we find significant effects of the minimum wage on the ex ante value of labor market careers, particularly in the case of Bertrand competition between firms. An important futures goal of this research agenda is to develop tests capable of determining which bargaining framework is more consistent with observed patterns of turnover and wage change at the individual level.

Suggested Citation

  • Christopher Flinn & James Mabli, 2008. "On-the-Job Search, Minimum Wages, and Labor Market Outcomes in an Equilibrium Bargaining Framework," Carlo Alberto Notebooks 91, Collegio Carlo Alberto.
  • Handle: RePEc:cca:wpaper:91
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    References listed on IDEAS

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    Cited by:

    1. Dube, Arindrajit & Lester, T. William & Reich, Michael, 2011. "Do Frictions Matter in the Labor Market? Accessions, Separations and Minimum Wage Effects," IZA Discussion Papers 5811, Institute of Labor Economics (IZA).
    2. Engelhardt, Bryan & Fuller, David L., 2012. "Labor force participation and pair-wise efficient contracts with search and bargaining," Labour Economics, Elsevier, vol. 19(3), pages 388-402.
    3. Eisenhauer, Philipp & Heckman, James J. & Mosso, Stefano, 2014. "Estimation of Dynamic Discrete Choice Models by Maximum Likelihood and the Simulated Method of Moments," IZA Discussion Papers 8548, Institute of Labor Economics (IZA).
    4. Zhang, W., 2018. "Distribution Effects of Local Minimum Wage Hikes: A Spatial Job Search Approach," Cambridge Working Papers in Economics 1889, Faculty of Economics, University of Cambridge.
    5. Shutao Cao & Enchuan Shao & Pedro Silos, 2010. "Fixed-term and permanent employment contracts: theory and evidence," FRB Atlanta Working Paper 2010-13, Federal Reserve Bank of Atlanta.
    6. Christopher Flinn & Ahu Gemici & Steven Laufer, 2017. "Search, Matching, and Training," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 25, pages 260-297, April.
    7. Bandopadhyay, Titas Kumar & Chaudhuri, Sarbajit, 2011. "Job-search and FDI in a two-sector general equilibrium model," MPRA Paper 35564, University Library of Munich, Germany.
    8. Tjaden, Volker & Wellschmied, Felix, 2011. "Exploring the Causes of Frictional Wage Dispersion," Bonn Econ Discussion Papers 04/2011, University of Bonn, Bonn Graduate School of Economics (BGSE).
    9. Weilong Zhang, 2018. "Distributional Effects of Local Minimum Wage Hikes: A Spatial Job Search Approach," 2018 Meeting Papers 12, Society for Economic Dynamics.
    10. Fernando Borraz & Nicolás González-Pampillón, 2017. "Assessing the distributive effects of minimum wage," Review of Development Economics, Wiley Blackwell, vol. 21(4), pages 1081-1112, November.
    11. Flinn, C. & Todd, P. & Zhang, W., 2020. "Personality Traits, Job Search and the Gender Wage Gap," Cambridge Working Papers in Economics 2053, Faculty of Economics, University of Cambridge.
    12. Fernando Borraz & Nicolás Gonzalez Pampillón, 2011. "Assessing the Distributive Impact of More than Doubling the Minimum Wage: The Case of Uruguay," Documentos de Trabajo (working papers) 1711, Department of Economics - dECON.
    13. Kai Liu, 2010. "Wage Risk, On-the-job Search and Partial Insurance," 2010 Meeting Papers 1136, Society for Economic Dynamics.
    14. Lukesch, Veronika & Zwick, Thomas, 2021. "Outside options drive wage inequalities in continuing jobs: Evidence from a natural experiment," ZEW Discussion Papers 21-003, ZEW - Leibniz Centre for European Economic Research.
    15. Mecikovsky, Ariel & Wellschmied, Felix, 2016. "Wage Risk, Employment Risk and the Rise in Wage Inequality," IZA Discussion Papers 10451, Institute of Labor Economics (IZA).
    16. Laws, A., 2018. "Do minimum wages increase search effort?," Cambridge Working Papers in Economics 1857, Faculty of Economics, University of Cambridge.
    17. Bartolucci, Cristian, 2012. "Business cycles and wage rigidity," Labour Economics, Elsevier, vol. 19(4), pages 568-583.
    18. Arindrajit Dube & T. William Lester & Michael Reich, 2016. "Minimum Wage Shocks, Employment Flows, and Labor Market Frictions," Journal of Labor Economics, University of Chicago Press, vol. 34(3), pages 663-704.
    19. Bandopadhyay, Titas Kumar & Chaudhuri, Sarbajit, 2011. "Job-search and foreign capital inflow — A two sector general equilibrium analysis," Economic Modelling, Elsevier, vol. 28(6), pages 2494-2501.
    20. Chéron, Arnaud & Hairault, Jean-Olivier & Langot, François, 2008. "A quantitative evaluation of payroll tax subsidies for low-wage workers: An equilibrium search approach," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 817-843, April.
    21. Bartolucci, Cristian, 2012. "Credible threats in a wage bargaining model with on-the-job search," Economics Letters, Elsevier, vol. 117(3), pages 657-659.
    22. Chaudhuri, Sarbajit & Bandopadhyay, Titas Kumar, 2013. "Job-search and foreign capital inflow — A three-sector general equilibrium analysis," Economic Modelling, Elsevier, vol. 35(C), pages 159-169.
    23. Rasmus Lentz, 2014. "Optimal Employment Contracts with Hidden Search," NBER Working Papers 19988, National Bureau of Economic Research, Inc.
    24. Bryan Engelhardt & David L. Fuller, 2009. "Efficient Labor Force Participation with Search and Bargaining," Working Papers 0909, College of the Holy Cross, Department of Economics, revised Nov 2009.
    25. Flabbi, Luca & Leonardi, Marco, 2010. "Sources of earnings inequality: Estimates from an on-the-job search model of the US labor market," European Economic Review, Elsevier, vol. 54(6), pages 832-854, August.

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    More about this item

    Keywords

    Minimum wage; On-the-job search; Renegotiation; Matching functions;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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