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Minimum Wages and Hours of Work

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  • Ross Doppelt

    (Penn State)

Abstract

I investigate, both empirically and theoretically, how minimum-wage laws affect the intensive margin of labor, or the number hours per employee. Using CPS data, I document the fact that minimum-wage employees work longer hours when the minimum wage is higher. To explain this pattern, I introduce a theoretical model of search and bargaining, subject to minimum-wage laws. Within a match, the number of hours is determined by an upward-sloping labor-supply curve, so people are willing to work more when the minimum wage goes up. Because contracts are bargained bilaterally, the firm's marginal profit from hiring an extra hour is positive, so firms are willing to accept the extra labor. However, higher wages diminish total profits, vacancy creation, and employment. I derive conditions under which a minimum wage can be welfare-improving, and I discuss empirical tests to determine whether those conditions are satisfied. In particular, if an increase in the minimum wage leads to an increase in total payrolls, then it suggests that a higher minimum wage is welfare-improving. After deriving these analytical results, I extend the model to facilitate a quantitative analysis.

Suggested Citation

  • Ross Doppelt, 2017. "Minimum Wages and Hours of Work," 2017 Meeting Papers 1578, Society for Economic Dynamics.
    • Handle: RePEc:red:sed017:1578
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    References listed on IDEAS

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    Cited by:

    1. Niklas Engbom & Christian Moser, 2022. "Earnings Inequality and the Minimum Wage: Evidence from Brazil," American Economic Review, American Economic Association, vol. 112(12), pages 3803-3847, December.
    2. Tomer Blumkin & Leif Danziger, 2018. "Deserving poor and the desirability of a minimum wage," IZA Journal of Labor Economics, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 7(1), pages 1-17, December.
    3. Calderón, Mariana & Cortés, Josué & Pérez Pérez, Jorge & Salcedo, Alejandrina, 2023. "Disentangling the Effects of Large Minimum Wage and VAT Changes on Prices: Evidence from Mexico," Labour Economics, Elsevier, vol. 80(C).
    4. Yuci Chen, 2019. "What Do Establishments Do When Wages Increase? Evidence from Minimum Wages in the United States," Working Papers 19-31, Center for Economic Studies, U.S. Census Bureau.

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