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Multiple Equilibria and Minimum Wages in Labour Markets with Informational Frictions and Heterogenous Production Technologies

  • van den Berg, Gerard J

It is often argued that a mandatory minimum wage is binding only if the wage density displays a spike at it. In this Paper we analyse a model with search frictions and heterogeneous production technologies, in which imposition of a minimum wage affects wages even though, after imposition, the lowest wage in the market exceeds the minimum wage. The model has multiple equilibria as a result of the fact that the reservation wage of the unemployed and the lowest production technology in use affect each other. Imposition of a minimum wage may improve social welfare.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3977.

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Date of creation: Jul 2003
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Handle: RePEc:cpr:ceprdp:3977
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