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Rational Expectations and the Puzzling No-E¤ect of the Minimum Wage

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  • Pinoli, Sara

    () (Uppsala Center for Labor Studies)

Abstract

This paper argues that expectations are an important element that need to be in- cluded into the analysis of the e¤ects of the minimum wage on employment. We show in a standard matching model that the observed employment e¤ect is higher the lower is the likelihood associated with the minimum wage variation. On the other side, there is a signi…cant anticipation e¤ect, ignored in the literature. This property is able to explain the controversial results found in the empirical studies. When the policy is anticipated, the e¤ect at the time of the actual variation is small and potentially hard to identify. The model is tested on Spanish data, taking advantage of the unexpected change in the minimum wage following the election of Zapatero in 2004.

Suggested Citation

  • Pinoli, Sara, 2010. "Rational Expectations and the Puzzling No-E¤ect of the Minimum Wage," Working Paper Series, Center for Labor Studies 2010:10, Uppsala University, Department of Economics.
  • Handle: RePEc:hhs:uulswp:2010_010
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    File URL: http://www.ucls.nek.uu.se/digitalAssets/136/136468_201010.pdf
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    Cited by:

    1. repec:zbw:rwirep:0348 is not listed on IDEAS
    2. Hanna Frings, 2013. "The Employment Effect of Industry-Specific, Collectively Bargained Minimum Wages," German Economic Review, Verein für Socialpolitik, vol. 14(3), pages 258-281, August.
    3. Hanna Frings, 2012. "The Employment Effect of Industry-Specific, Collectively-Bargained Minimum Wages," Ruhr Economic Papers 0348, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.

    More about this item

    Keywords

    Minimum wage; Expectations; Heterogeneous matches;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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