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The impact of the minimum wage on capital accumulation and employment in a large-firm framework

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

    ()

We study the effect of a binding minimum wage on labor market outcomes, the accumulation of capital and welfare. We consider a large firm that invests in physical capital and hires several types of workers. Labor markets are characterized by search and matching frictions, while incomplete wage contracts allow workers to appropriate part of the return on each factor. Absent a minimum wage, the model in general gives rise to inefficient levels of capital and employment. We show that, when labor types are substitutes, the introduction of a binding minimum wage has positive effects on capital and positive and small effects on employment, and these effects depend on the ability of the minimum wage to deter rent appropriation by workers.JEL codes: E24; J63; J68; L20.

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File URL: http://www.dii.uchile.cl/~cea/sitedev/cea/www/download.php?file=documentos_trabajo/
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Paper provided by Centro de Economía Aplicada, Universidad de Chile in its series Documentos de Trabajo with number 309.

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Date of creation: 2015
Handle: RePEc:edj:ceauch:309
Contact details of provider: Web page: http://www.dii.uchile.cl/cea/

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  1. Francesco Caselli & James Feyrer, 2007. "The Marginal Product of Capital," The Quarterly Journal of Economics, Oxford University Press, vol. 122(2), pages 535-568.
  2. Robert E. Hall & Charles I. Jones, 1999. "Why do Some Countries Produce So Much More Output Per Worker than Others?," The Quarterly Journal of Economics, Oxford University Press, vol. 114(1), pages 83-116.
  3. David, Quentin & Janiak, Alexandre & Wasmer, Etienne, 2010. "Local social capital and geographical mobility," Journal of Urban Economics, Elsevier, vol. 68(2), pages 191-204, September.
  4. William Hawkins, 2015. "Bargaining with Commitment Between Workers and Large Firms," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(2), pages 350-364, April.
  5. Janiak, Alexandre, 2013. "Structural unemployment and the costs of firm entry and exit," Labour Economics, Elsevier, vol. 23(C), pages 1-19.
  6. Cardoso, Ana Rute & Portugal, Pedro, 2001. "Disentangling the Minimum Wage Puzzle: An Analysis of Job Accessions and Separations from a Longitudinal Matched Employer-Employee Data Set," CEPR Discussion Papers 2844, C.E.P.R. Discussion Papers.
  7. David S. Lee, 1999. "Wage Inequality in the United States During the 1980s: Rising Dispersion or Falling Minimum Wage?," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 977-1023.
  8. Lars A. Stole & Jeffrey Zwiebel, 1996. "Intra-firm Bargaining under Non-binding Contracts," Review of Economic Studies, Oxford University Press, vol. 63(3), pages 375-410.
  9. Arthur J. Hosios, 1990. "On The Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Oxford University Press, vol. 57(2), pages 279-298.
  10. Burkhauser, Richard V & Couch, Kenneth A & Wittenburg, David C, 2000. "A Reassessment of the New Economics of the Minimum Wage Literature with Monthly Data from the Current Population Survey," Journal of Labor Economics, University of Chicago Press, vol. 18(4), pages 653-680, October.
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