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Can a non-binding minimum wage reduce wages and employment?


  • Sofía 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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  • Sofía Bauducco & Alexandre Janiak, 2015. "Can a non-binding minimum wage reduce wages and employment?," Documentos de Trabajo 308, Centro de Economía Aplicada, Universidad de Chile.
  • Handle: RePEc:edj:ceauch:308

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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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