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Rational Expectations and the Puzzling No-Effect of the Minimum Wage

  • Pinoli, Sara

This paper argues that expectations are an important element that need to be included into the analysis of the effects of the minimum wage on employment. We show in a standard matching model that these effects are higher the lower is the likelihood associated to the minimum wage variation. This property also helps explaining the controversial results found in the empirical literature. When the policy is anticipated, the observed effect at the time of the actual variation is small and 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.

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File URL: http://mpra.ub.uni-muenchen.de/11405/2/MPRA_paper_11405.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 11405.

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Date of creation: 04 Oct 2008
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Handle: RePEc:pra:mprapa:11405
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  1. Robin Boadway & Katherine Cuff, 1999. "A Minimum Wage can be Welfare-Improving and Employment-Enhancing," Working Papers 980, Queen's University, Department of Economics.
  2. David Card & Alan Krueger, 1993. "Minimum Wages and Employment: A Case Study of the Fast Food Industry in New Jersey and Pennsylvania," Working Papers 694, Princeton University, Department of Economics, Industrial Relations Section..
  3. Pedro Portugal & Ana Rute Cardoso, 2006. "Disentangling the Minimum Wage Puzzle: An Analysis of Worker Accessions and Separations," Journal of the European Economic Association, MIT Press, vol. 4(5), pages 988-1013, 09.
  4. David Card, 1992. "Using regional variation in wages to measure the effects of the federal minimum wage," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 46(1), pages 22-37, October.
  5. Alan Manning, 2003. "The real thin theory: monopsony in modern labour markets," LSE Research Online Documents on Economics 20050, London School of Economics and Political Science, LSE Library.
  6. Manning, Alan, 2004. "Monopsony and the efficiency of labour market interventions," Labour Economics, Elsevier, vol. 11(2), pages 145-163, April.
  7. William Wascher & David Neumark, 2000. "Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania: Comment," American Economic Review, American Economic Association, vol. 90(5), pages 1362-1396, December.
  8. 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.
  9. Neumark, David & Wascher, William, 1995. "Minimum-Wage Effects on School and Work Transitions of Teenagers," American Economic Review, American Economic Association, vol. 85(2), pages 244-49, May.
  10. James B. Rebitzer & Lowell J. Taylor, 1991. "The Consequences of Minimum Wage Laws: Some New Theoretical Ideas," NBER Working Papers 3877, National Bureau of Economic Research, Inc.
  11. Neumark, David & Wascher, William, 2007. "Minimum Wages and Employment," IZA Discussion Papers 2570, Institute for the Study of Labor (IZA).
  12. Brown, Charles & Gilroy, Curtis & Kohen, Andrew, 1982. "The Effect of the Minimum Wage on Employment and Unemployment," Journal of Economic Literature, American Economic Association, vol. 20(2), pages 487-528, June.
  13. David Neumark & William L. Wascher, 2008. "Minimum Wages," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262141027, June.
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