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Household labor supply, unemployment, and minimum wage legislation

Author

Listed:
  • Basu, Kaushik
  • Genicot, Garance
  • Stiglitz, Joseph E.

Abstract

The supply behavior of labor often depends on the demand conditions prevailing in the labor market. If demand is inadequate, households may send additional household members, who otherwise would not have worked, to look for work, for fear the main income earner may lose his job. The authors study the theoretical consequences of this"added worker"effect. They show that it can rise to multiple equilibria in the labor market. Surprisingly, a minimum wage law set below the prevailing market wage can cause the market wage to fall and unemployment to rise. Unemployment benefits, by countering some of the risks of unemployment, can neutralize the inefficiencies caused by households'tendency to oversupply labor.

Suggested Citation

  • Basu, Kaushik & Genicot, Garance & Stiglitz, Joseph E., 1999. "Household labor supply, unemployment, and minimum wage legislation," Policy Research Working Paper Series 2049, The World Bank.
  • Handle: RePEc:wbk:wbrwps:2049
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    References listed on IDEAS

    as
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    5. Mincer, Jacob, 1976. "Unemployment Effects of Minimum Wages," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 87-104, August.
    6. Schlicht, Ekkehart, 1978. "Labour Turnover, Wage Structure, and Natural Unemployment," Munich Reprints in Economics 1255, University of Munich, Department of Economics.
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    12. Lundberg, Shelly, 1985. "The Added Worker Effect," Journal of Labor Economics, University of Chicago Press, vol. 3(1), pages 11-37, January.
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    Citations

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    Cited by:

    1. Shirkosh, Mehdi, 2005. "The Case for an International Minimum Wage in the Context of Free Trade," MPRA Paper 2463, University Library of Munich, Germany.
    2. Jorge A. Paz, 2008. "Cambios en el ingreso del hogar y sus efectos sobre la escolaridad de menores (Argentina, 1995-2003)," Working Papers 2, Instituto de Estudios Laborales y del Desarrollo Económico (IELDE) - Universidad Nacional de Salta - Facultad de Ciencias Económicas, Jurídicas y Sociales.
    3. Umaña-Aponte, Marcela & Bhalotra, Sonia R., 2012. "Women's Labour Supply and Household Insurance in Africa," WIDER Working Paper Series 066, World Institute for Development Economic Research (UNU-WIDER).
    4. Grimsrud, Bjorne, 2001. "What can be done about child labor ? - An overview of recent research and its implications for designing programs to reduce child labor," Social Protection and Labor Policy and Technical Notes 23030, The World Bank.
    5. Pieter Serneels, 2002. "The added worked effect and intra household aspects of unemployment," CSAE Working Paper Series 2002-14, Centre for the Study of African Economies, University of Oxford.
    6. Jason Furman & Joseph E. Stiglitz, 1998. "Economic consequences of income inequality," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 221-263.
    7. Sonia Bhalotra & Marcela Umaña-Aponte, 2010. "The Dynamics of Women’s Labour Supply in Developing Countries," The Centre for Market and Public Organisation 10/235, Department of Economics, University of Bristol, UK.
    8. Pieter Serneels, 2004. "The Nature of Unemployment in Urban Ethiopia," Development and Comp Systems 0409042, EconWPA.
    9. Chang, Yang-Ming & Huang, Biing-Wen & Chen, Yun-Ju, 2012. "Labor supply, income, and welfare of the farm household," Labour Economics, Elsevier, vol. 19(3), pages 427-437.
    10. Jellal, Mohamed, 2012. "Maroc salaire minimum emploi et pauvreté
      [Morocco minimum wage employment and poverty]
      ," MPRA Paper 38491, University Library of Munich, Germany.

    More about this item

    Keywords

    Economic Theory&Research; Labor Policies; Health Economics&Finance; Labor Markets; Environmental Economics&Policies; Health Economics&Finance; Labor Markets; Access to Markets; Environmental Economics&Policies; Economic Theory&Research;

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