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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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  1. Russell S. Sobel, 1999. "Theory and Evidence on the Political Economy of the Minimum Wage," Journal of Political Economy, University of Chicago Press, vol. 107(4), pages 761-785, August.
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  8. Gerard J. van den Berg & Bas van der Klaauw & Jan C. van Ours, 2004. "Punitive Sanctions and the Transition Rate from Welfare to Work," Journal of Labor Economics, University of Chicago Press, vol. 22(1), pages 211-241, January.
  9. Forslund, A, Lindh, T., 1997. "Bargaining, Capital Formation and Unemployment: A Putty-Clay Approach," Papers 1997-18, Uppsala - Working Paper Series.
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  19. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-73, May.
  20. Bontemps, C. & Robin, J.M. & van den Berg, G.J., 1998. "Equilibrium Search with Continuous Productivity Dispersion: Theory and Non-Parametric Estimation," Papers 98-07, Centre for Labour Market and Social Research, Danmark-.
  21. Pedersen, P.J. & Smith, N., 1998. "Low Incomes in Denmark, 1980-1995," Papers 98-19, Centre for Labour Market and Social Research, Danmark-.
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