IDEAS home Printed from https://ideas.repec.org/p/red/sed012/611.html
   My bibliography  Save this paper

Firm Heterogeneity, Sorting and the Minimum Wage

Author

Listed:
  • Rafael Lopes de Melo

    (University of Chicago)

Abstract

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.

Suggested Citation

  • Rafael Lopes de Melo, 2012. "Firm Heterogeneity, Sorting and the Minimum Wage," 2012 Meeting Papers 611, Society for Economic Dynamics.
  • Handle: RePEc:red:sed012:611
    as

    Download full text from publisher

    File URL: https://economicdynamics.org/meetpapers/2012/paper_611.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Xavier Gabaix & Augustin Landier, 2008. "Why has CEO Pay Increased So Much?," The Quarterly Journal of Economics, Oxford University Press, vol. 123(1), pages 49-100.
    2. James J. Heckman, 1976. "The Common Structure of Statistical Models of Truncation, Sample Selection and Limited Dependent Variables and a Simple Estimator for Such Models," NBER Chapters,in: Annals of Economic and Social Measurement, Volume 5, number 4, pages 475-492 National Bureau of Economic Research, Inc.
    3. DiNardo, John & Fortin, Nicole M & Lemieux, Thomas, 1996. "Labor Market Institutions and the Distribution of Wages, 1973-1992: A Semiparametric Approach," Econometrica, Econometric Society, vol. 64(5), pages 1001-1044, September.
    4. Mariano Bosch & Marco Manacorda, 2010. "Minimum Wages and Earnings Inequality in Urban Mexico," American Economic Journal: Applied Economics, American Economic Association, vol. 2(4), pages 128-149, October.
    5. Sattinger, Michael, 1977. "Compensating wage differences," Journal of Economic Theory, Elsevier, vol. 16(2), pages 496-503, December.
    6. Marimon, Ramon & Zilibotti, Fabrizio, 1999. "Unemployment vs. Mismatch of Talents: Reconsidering Unemployment Benefits," Economic Journal, Royal Economic Society, vol. 109(455), pages 266-291, April.
    7. Weiss, Yoram, 1976. "The Wealth Effect in Occupational Choice," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 17(2), pages 292-307, June.
    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, July.
    9. Jan Eeckhout & Philipp Kircher, 2011. "Identifying Sorting--In Theory," Review of Economic Studies, Oxford University Press, vol. 78(3), pages 872-906.
    10. Robert M. Solow, 1962. "Substitution and Fixed Proportions in the Theory of Capital," Review of Economic Studies, Oxford University Press, vol. 29(3), pages 207-218.
    11. Jesper Bagger & Rasmus Lentz, 2008. "An Equilibrium Model of Wage Dispersion with Sorting," 2008 Meeting Papers 271, Society for Economic Dynamics.
    12. Mark Doms & Eric J. Bartelsman, 2000. "Understanding Productivity: Lessons from Longitudinal Microdata," Journal of Economic Literature, American Economic Association, vol. 38(3), pages 569-594, September.
    13. Teulings, Coen N, 2000. "Aggregation Bias in Elasticities of Substitution and the Minimum Wage Paradox," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(2), pages 359-398, May.
    14. Sattinger, Michael, 1979. "Differential Rents and the Distribution of Earnings," Oxford Economic Papers, Oxford University Press, vol. 31(1), pages 60-71, March.
    15. Fane Groes & Philipp Kircher & Iourii Manovskii, 2015. "The U-Shapes of Occupational Mobility," Review of Economic Studies, Oxford University Press, vol. 82(2), pages 659-692.
    16. Richard Dickens & Alan Manning, 2004. "Spikes and spill-overs: The impact of the national minimum wage on the wage distribution in a low-wage sector," Economic Journal, Royal Economic Society, vol. 114(494), pages 95-101, March.
    17. Becker, Gary S, 1973. "A Theory of Marriage: Part I," Journal of Political Economy, University of Chicago Press, vol. 81(4), pages 813-846, July-Aug..
    18. Kosali Ilayperuma Simon & Robert Kaestner, 2004. "Do Minimum Wages Affect Non-Wage Job Attributes? Evidence on Fringe Benefits," ILR Review, Cornell University, ILR School, vol. 58(1), pages 52-70, October.
    19. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    20. Coen N. Teulings, 2003. "The contribution of minimum wages to increasing wage inequality," Economic Journal, Royal Economic Society, vol. 113(490), pages 801-833, October.
    21. Meyer, Robert H & Wise, David A, 1983. "Discontinuous Distributions and Missing Persons: The Minimum Wage and Unemployed Youth," Econometrica, Econometric Society, vol. 51(6), pages 1677-1698, November.
    22. A. D. Roy, 1951. "Some Thoughts On The Distribution Of Earnings," Oxford Economic Papers, Oxford University Press, vol. 3(2), pages 135-146.
    23. Armin Falk & Ernst Fehr & Christian Zehnder, 2006. "Fairness Perceptions and Reservation Wages—the Behavioral Effects of Minimum Wage Laws," The Quarterly Journal of Economics, Oxford University Press, vol. 121(4), pages 1347-1381.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Christian Moser & Niklas Engbom, 2016. "Earnings Inequality and the Minimum Wage: Evidence from Brazil," 2016 Meeting Papers 72, Society for Economic Dynamics.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:red:sed012:611. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann). General contact details of provider: http://edirc.repec.org/data/sedddea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.