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The Endogenous Determination of Minimum Wage

  • Epstein, Gil S
  • Nitzan, Shmuel

In this paper we study the endogenous determination of minimum wage employing a political-economic game-theoretic approach. A major objective of the paper is to clarify the crucial role of the strength of the workers' union and of political culture on the determination of the minimum wage. In general, the equilibrium minimum wage differs from that postulated in the literature. In our uncertain environment the optimal minimum wage from the workers' union point of view is lower than the level that maximizes its objective function in a certain environment where there is no opposition to the proposed minimum wage. We establish that a political culture that assigns a positive weight to the public wellbeing can give rise to a wage that equals or exceeds these levels.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2319.

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Date of creation: Dec 1999
Date of revision:
Handle: RePEc:cpr:ceprdp:2319
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  1. Van Long, Ngo & Vousden, Neil, 1991. "Protectionist responses and declining industries," Journal of International Economics, Elsevier, vol. 30(1-2), pages 87-103, February.
  2. Gene M. Grossman & Elhanan Helpman, 1992. "Protection For Sale," NBER Working Papers 4149, National Bureau of Economic Research, Inc.
  3. repec:cup:cbooks:9780521377003 is not listed on IDEAS
  4. Saint-Paul, G., 1995. "A Framework for Analyzing the Political Support for Active Labor Market Policy," DELTA Working Papers 95-12, DELTA (Ecole normale supérieure).
  5. Rodrik, Dani, 1986. "Tariffs, subsidies, and welfare with endogenous policy," Journal of International Economics, Elsevier, vol. 21(3-4), pages 285-299, November.
  6. Oren M. Levin-Waldman, 1998. "Exploring the Politics of the Minimum Wage," Macroeconomics 9805010, EconWPA.
  7. Appelbaum, Elie & Katz, Eliakim, 1987. "Seeking Rents by Setting Rents: The Political Economy of Rent Seeking," Economic Journal, Royal Economic Society, vol. 97(387), pages 685-99, September.
  8. David Card & Alan Krueger, 1993. "Minimum Wages and Employment: A Case Study of the Fast Food Industry in New Jersey and Pennsylvania," Working Papers 694, Princeton University, Department of Economics, Industrial Relations Section..
  9. Rama, Martin, 1997. " Imperfect Rent Dissipation with Unionized Labor," Public Choice, Springer, vol. 93(1-2), pages 55-75, October.
  10. Bernheim, B Douglas & Whinston, Michael D, 1986. "Common Agency," Econometrica, Econometric Society, vol. 54(4), pages 923-42, July.
  11. Martín Rama & Guido Tabellini, . "Lobbying by Capital and Labor over Trade and Labor Market Policies," Working Papers 94, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  12. repec:cup:cbooks:9780521362474 is not listed on IDEAS
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