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

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  • Sofía Bauducco
  • Alexandre Janiak

Abstract

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.

Suggested Citation

  • Sofía Bauducco & Alexandre Janiak, 2015. "The impact of the minimum wage on capital accumulation and employment in a large-firm framework," Documentos de Trabajo 309, Centro de Economía Aplicada, Universidad de Chile.
    • Handle: RePEc:edj:ceauch:309
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    References listed on IDEAS

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    Cited by:

    1. Sofía Bauducco & Alexandre Janiak, 2015. "On the welfare cost of bank concentration," Documentos de Trabajo 321, Centro de Economía Aplicada, Universidad de Chile.
    2. Sofia Bauducco & Alexandre Janiak, 2015. "Can a Non-Binding Minimum Wage Reduce Wages and Employment?," Working Papers Central Bank of Chile 756, Central Bank of Chile.

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    More about this item

    Keywords

    Minimum wage; Employment; Capital; Search; Large firm; Hold up;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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