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Firm Heterogeneity, Sorting and the Minimum Wage

  • Rafael Lopes de Melo

    (University of Chicago)

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    In this paper, we show that firm heterogeneity and labor market sorting can help us understand a number of empirical facts, and aspects related to the political economy of minimum wages. We study a competitive economy with non-transferable utility, and preferences which depend on worker and firm types. Sorting in this environment can be induced by complementarities in productions or forces related to preferences. With firm heterogeneity, minimum wage increases affect workers above the minimum wage threshold, reducing wage inequality, increasing dispersion in firm profits and reducing the size of employment effects. It can also explain why such policies have political support, as workers above the threshold benefit from the policy.

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    File URL: https://www.economicdynamics.org/meetpapers/2012/paper_611.pdf
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    Paper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 611.

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    Date of creation: 2012
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    Handle: RePEc:red:sed012:611
    Contact details of provider: Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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