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Setting the Minimum Wage

  • Boeri, Tito

    ()

    (Bocconi University)

The process leading to the setting of the minimum wage so far has been fairly overlooked by economists. This paper suggests that this is a serious limitation as the setting regime contributes to explain cross-country variation in the fine-tuning of the minimum wage, hence in the way in which the trade-off between reducing poverty among working people and shutting down low productivity jobs is addressed. There are two common ways of setting national minimum wages: they are either government legislated or are the outcome of collective bargaining agreements, which are extended erga omnes to all workers. We develop a simple model relating the level of the minimum wage to the setting regime. Next, we exploit a new data set on minimum wages in 66 countries that had already or introduced a minimum wage in the period 1981-2005 to test the implications of the model. We find that a Government legislated minimum wage is lower than a wage floor set within collective agreements. This effect survives to several robustness checks and hints at a causal relation between the setting regime and the level of the minimum wage.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4335.

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Length: 30 pages
Date of creation: Jul 2009
Date of revision:
Publication status: published in: Labour Economics, 2012, 19 (3), 281-290
Handle: RePEc:iza:izadps:dp4335
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  1. Dani Rodrik, 1998. "Democracies Pay Higher Wages," NBER Working Papers 6364, National Bureau of Economic Research, Inc.
  2. Uri, Noel D & Mixon, J Wilson, Jr, 1980. "An Economic Analysis of the Determinants of Minimum Wage Voting Behavior," Journal of Law and Economics, University of Chicago Press, vol. 23(1), pages 167-77, April.
  3. William Brown, 2009. "The Process of Fixing the British National Minimum Wage, 1997-2007," British Journal of Industrial Relations, London School of Economics, vol. 47(2), pages 429-443, 06.
  4. Boeri, Tito & Burda, Michael C., 2008. "Preferences for Collective versus Individualised Wage Setting," IZA Discussion Papers 3365, Institute for the Study of Labor (IZA).
  5. Neumark, David & Wascher, William, 2007. "Minimum Wages and Employment," IZA Discussion Papers 2570, Institute for the Study of Labor (IZA).
  6. Assar Lindbeck & Sten Nyberg & Jšrgen W. Weibull, 1999. "Social Norms And Economic Incentives In The Welfare State," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 1-35, February.
  7. Orley Ashenfelter & David Card, 1984. "Using the Longitudinal Structure of Earnings to Estimate the Effect of Training Programs," Working Papers 554, Princeton University, Department of Economics, Industrial Relations Section..
  8. Danziger, Leif, 2007. "The Elasticity of Labor Demand and the Minimum Wage," IZA Discussion Papers 3150, Institute for the Study of Labor (IZA).
  9. Nickell, S J & Andrews, M, 1983. "Unions, Real Wages and Employment in Britain 1951-79," Oxford Economic Papers, Oxford University Press, vol. 35(0), pages 183-206, Supplemen.
  10. Boeri, Tito & Macis, Mario, 2008. "Do Unemployment Benefits Promote or Hinder Structural Change?," IZA Discussion Papers 3371, Institute for the Study of Labor (IZA).
  11. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 279-98, April.
  12. Silberman, Jonathan I & Durden, Garey C, 1976. "Determining Legislative Preferences on the Minimum Wage: An Economic Approach," Journal of Political Economy, University of Chicago Press, vol. 84(2), pages 317-29, April.
  13. André Sapir & Marco Buti, 1998. "Economic policy in EMU," ULB Institutional Repository 2013/8078, ULB -- Universite Libre de Bruxelles.
  14. Yann Algan & Pierre Cahuc, 2007. "Social Attitudes and Economic Development : an Epidemiological Approach," Sciences Po publications 6403, Sciences Po.
  15. Boeri, Tito & Macis, Mario, 2010. "Do unemployment benefits promote or hinder job reallocation?," Journal of Development Economics, Elsevier, vol. 93(1), pages 109-125, September.
  16. Christopher J. Flinn, 2006. "Minimum Wage Effects on Labor Market Outcomes under Search, Matching, and Endogenous Contact Rates," Econometrica, Econometric Society, vol. 74(4), pages 1013-1062, 07.
  17. André Blais & Jean-Michel Cousineau & Kenneth McRoberts, 1989. "The determinants of minimum wage rates," Public Choice, Springer, vol. 62(1), pages 15-24, July.
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