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Can a Non-Binding Minimum Wage Reduce Wages and Employment?

Listed author(s):
  • Sofia Bauducco
  • Alexandre Janiak

We show that, in the large-firm search model (e.g. Cahuc et al. (2008)), a minimum wage may reduce employment even when the level of the introduced minimum wage lies below the equilibrium wage of the laisser-faire economy. The argument is based on multiple equilibria and the idea that, in a large-firm context, the representative firm may choose to overemploy workers in order to renegotiate lower wages.

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File URL: http://si2.bcentral.cl/public/pdf/documentos-trabajo/pdf/dtbc756.pdf
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Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 756.

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Date of creation: Apr 2015
Handle: RePEc:chb:bcchwp:756
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  1. Ch. Pissarides., 2011. "The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer?," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 1.
  2. Sofia Bauducco & Alexandre Janiak, 2015. "The Impact of the Minimum Wage on Capital Accumulation and Employment in a Large-Firm Framework," Working Papers Central Bank of Chile 755, Central Bank of Chile.
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