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Multiple Equilibria and Minimum Wages in Labor Markets with Informational Frictions and Heterogeneous Production Technologies

  • van den Berg, Gerard J.

    ()

    (University of Bristol)

It is often argued that a mandatory minimum wage is binding only if the wage density displays a spike at it. In this paper we analyze a model with search frictions and heterogeneous production technologies, in which imposition of a minimum wage affects wages even though, after imposition, the lowest wage in the market exceeds the minimum wage. The model has multiple equilibria as a result of the fact that the reservation wage of the unemployed and the lowest production technology in use affect each other. Imposition of a minimum wage may improve social welfare.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 806.

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Length: 35 pages
Date of creation: Jun 2003
Date of revision:
Publication status: published in: International Economic Review, 2003, 44 (4), 1337-1357
Handle: RePEc:iza:izadps:dp806
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  3. van den Berg, Gerard J, 1999. "Empirical Inference with Equilibrium Search Models of the Labour Market," Economic Journal, Royal Economic Society, vol. 109(456), pages F283-306, June.
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  7. Pedersen, P.J. & Smith, N., 1998. "Low Incomes in Denmark, 1980-1995," Papers 98-19, Centre for Labour Market and Social Research, Danmark-.
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  9. Bontemps, Christian & Robin, Jean-Marc & van den Berg, Gerard J, 2000. "Equilibrium Search with Continuous Productivity Dispersion: Theory and Nonparametric Estimation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(2), pages 305-58, May.
  10. Bowlus, Audra J, 1997. "A Search Interpretation of Male-Female Wage Differentials," Journal of Labor Economics, University of Chicago Press, vol. 15(4), pages 625-57, October.
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  12. Jennifer F. Reinganum, 1978. "A Simple Model of Equilibrium Price Dispersion," Discussion Papers 335, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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  23. Koning, Pierre & Ridder, Geert & van den Berg, Gerard J, 1995. "Structural and Frictional Unemployment in an Equilibrium Search Model with Heterogeneous Agents," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(S), pages S133-51, Suppl. De.
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