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Age-Differentiated Minimum Wages in a Dual Labor Market Model

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  • Mauricio Larraín
  • Joaquín Poblete

Abstract

The fact that minimum wages seem especially binding for young workers has led some countries to adopt age-differentiated minimum wages. We develop a dynamic competitive two-sector labor market model where workers with heterogeneous initial skills gain productivity through experience. We compare two equally binding schemes of single and age-differentiated minimum wages, and find that although differentiated minimum wages result in a more equal distribution of income, such a scheme creates a more unequal distribution of wealth, by forcing less skilled workers to remain longer in the uncovered sector. We also show that relaxing minimum wage solely for young workers may be harmful for less skilled ones.

Suggested Citation

  • Mauricio Larraín & Joaquín Poblete, 2004. "Age-Differentiated Minimum Wages in a Dual Labor Market Model," Working Papers Central Bank of Chile 268, Central Bank of Chile.
  • Handle: RePEc:chb:bcchwp:268
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    File URL: http://si2.bcentral.cl/public/pdf/documentos-trabajo/pdf/dtbc268.pdf
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    References listed on IDEAS

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    1. David Neumark & William Wascher, 2004. "Minimum Wages, Labor Market Institutions, and Youth Employment: A Cross-National Analysis," ILR Review, Cornell University, ILR School, vol. 57(2), pages 223-248, January.
    2. Jaime Saavedra & Alberto Chong, 1999. "Structural reform, institutions and earnings: Evidence from the formal and informal sectors in urban Peru," Journal of Development Studies, Taylor & Francis Journals, vol. 35(4), pages 95-116.
    3. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
    4. Yamada, Gustavo, 1996. "Urban Informal Employment and Self-Employment in Developing Countries: Theory and Evidence," Economic Development and Cultural Change, University of Chicago Press, vol. 44(2), pages 289-314, January.
    5. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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    Cited by:

    1. Larrain, Mauricio & Poblete, Joaquin, 2007. "Age-differentiated minimum wages in developing countries," Journal of Development Economics, Elsevier, vol. 84(2), pages 777-797, November.

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