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Participation, Recruitment Selection, and the Minimum Wage

  • Frederic Gavrel

This paper reexamines the efficiency of participation with heterogeneous workers in a search-matching model with bargained wages and free entry. Assuming that firms hire their best applicants, we show that participation is always too low. The reason for this is a holdup phenomenon: To be active, a worker must pay the entire search cost whereas part of the gain from this investment goes to the firm. As a consequence, introducing a (small) minimum wage raises participation, job creation, and employment. Therefore, net aggregate income of the economy is increased.. † I am indebted to two anonymous referees for very helpful comments and suggestions. The usual caveat applies. Til Emma med kjaerlighet. 1

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File URL: http://www.tepp-repec.eu/RePEc/files/teppwp/TEPP-wp-14-02-fg.pdf
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Paper provided by TEPP in its series TEPP Working Paper with number 2014-02.

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Date of creation: 2014
Handle: RePEc:tep:teppwp:wp14-02
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Université Paris-Est Marne La Vallée, 5 bd Descartes, 77454 Champs sur Marne

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  1. David Card & Alan B. Krueger, 1993. "Minimum Wages and Employment: A Case Study of the Fast Food Industry in New Jersey and Pennsylvania," NBER Working Papers 4509, National Bureau of Economic Research, Inc.
  2. Etienne Lehmann & Alexis Parmentier & Bruno Vanderlinden, 2011. "Optimal income taxation with endogenous participation and search unemployment," Post-Print hal-01248156, HAL.
  3. Holmlund, B., 1997. "Unemployment Insurance in Theory and Practice," Papers 1997-25, Uppsala - Working Paper Series.
  4. Olivier Jean Blanchard & Peter Diamond, 1990. "Ranking, Unemployment Duration, and Wages," NBER Working Papers 3387, National Bureau of Economic Research, Inc.
  5. Gavrel, Frédéric, 2012. "On the inefficiency of matching models of unemployment with heterogeneous workers and jobs when firms rank their applicants," European Economic Review, Elsevier, vol. 56(8), pages 1746-1758.
  6. Albrecht, James & Navarro, Lucas & Vroman, Susan, 2009. "Efficiency in a Search and Matching Model with Endogenous Participation," IZA Discussion Papers 4097, Institute for the Study of Labor (IZA).
  7. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, March.
  8. Frédéric Gavrel, 2011. "On the efficiency of participation with vertically differentiated workers," Post-Print halshs-00607253, HAL.
  9. Pissarides, Christopher A., 2001. "Employment protection," Labour Economics, Elsevier, vol. 8(2), pages 131-159, May.
  10. 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.
  11. Frédéric Gavrel & Isabelle Lebon & Thérèse Rebière, 2012. "Minimum wage, on-the-job search and employment : On the sectoral and aggregate equilibrium effect of the mandatory minimum wage," Post-Print halshs-00742749, HAL.
  12. Moen, Espen R. & Rosén, Åsa, 2002. "Does poaching distort training?," Working Paper Series 4/2002, Swedish Institute for Social Research.
  13. Zenou, Yves, 2007. "Search in Cities," CEPR Discussion Papers 6197, C.E.P.R. Discussion Papers.
  14. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 385-411, April.
  15. Barbara Petrongolo & Christopher Pissarides, 2000. "Looking into the black box: a survey of the matching function," LSE Research Online Documents on Economics 2122, London School of Economics and Political Science, LSE Library.
  16. Portugal, Pedro & Cardoso, Ana Rute, 2002. "Disentangling the Minimum Wage Puzzle: An Analysis of Worker Accessions and Separations," IZA Discussion Papers 544, Institute for the Study of Labor (IZA).
  17. Moen, Espen R, 1999. "Education, Ranking, and Competition for Jobs," Journal of Labor Economics, University of Chicago Press, vol. 17(4), pages 694-723, October.
  18. Gavrel, Frédéric, 2009. "Technical skill bias as a response of firms to unemployment: A matching model with applicant ranking and endogenous skill requirements," Labour Economics, Elsevier, vol. 16(3), pages 304-310, June.
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