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Collusion at the Non-Binding Minimum Wage: An Automatic Stabilizer?

  • Natalya Y. Shelkova

    (Guilford College and University of Connecticut)

This paper examines unemployment dynamics through the lens of a wage-posting model with two sectors and two types of workers. The model assumptions include collusion at a non-binding minimum wage, costly entry and intersectoral labor mobility. Model simulations demonstrate that collusion at a non-binding minimum wage induces entry into the low-wage sector. This dampens the overall negative employment impact of economic downturns. The excess of low-wage vacancies has shown not only to secure low unemployment rates for the low-skilled workers, but also to provide employment opportunities for the high-skilled when their industries substantially decline.

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Paper provided by University of Connecticut, Department of Economics in its series Working papers with number 2009-41.

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Length: 40 pages
Date of creation: Dec 2009
Date of revision:
Handle: RePEc:uct:uconnp:2009-41
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Web page: http://www.econ.uconn.edu/

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  1. Steven J. Davis & R. Jason Faberman & John Haltiwanger & Ron Jarmin & Javier Miranda, 2007. "Business volatility, job destruction and unemployment," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
  2. Bhaskar, V. & To, Ted, 2003. "Oligopsony and the distribution of wages," European Economic Review, Elsevier, vol. 47(2), pages 371-399, April.
  3. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-73, May.
  4. Shapiro, Joel, 2004. "Income taxation in a frictional labor market," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 465-479, March.
  5. James Albrecht & Gerard van den Berg & Susan Vroman, 2009. "The Aggregate Labor Market Effects of the Swedish Knowledge Lift Program," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(1), pages 129-146, January.
  6. Albrecht, James & Tan, Serene & Gautier, Pieter & Vroman, Susan, 2004. "Matching with multiple applications revisited," Economics Letters, Elsevier, vol. 84(3), pages 311-314, September.
  7. Natalya Y. Shelkova, 2008. "Low-Wage Labor Markets and the Power of Suggestion," Working papers 2008-33, University of Connecticut, Department of Economics, revised Dec 2008.
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