On-the-Job Search, Minimum Wages, and Labor Market Outcomes in an Equilibrium Bargaining Framework

Christopher Flinn and James Mabli

No 91, Carlo Alberto Notebooks from Collegio Carlo Alberto

Abstract: We look at the impact of a binding minimum wage on labor market outcomes and welfare distributions in a partial equilibrium model of matching and bargaining in the presence of on-the-job search. We use two different specifications of the Nash bargaining problem. In one, firms engage in a Bertrand competition for the services of an individual, as in Postel-Vinay and Robin (2002). In the other, firms do not engage in such competitions, and the outside option used in bargaining is always the value of unemployed search. We estimate both bargaining specifications using a Method of Simulated Moments estimator applied to data from a recent wave of the Survey of Income and Program Participation. Even though individuals will be paid the minimum wage for a small proportion of their labor market careers, we find significant effects of the minimum wage on the ex ante value of labor market careers, particularly in the case of Bertrand competition between firms. An important futures goal of this research agenda is to develop tests capable of determining which bargaining framework is more consistent with observed patterns of turnover and wage change at the individual level.

Keywords: Minimum wage; On-the-job search; Renegotiation; Matching functions (search for similar items in EconPapers)
JEL-codes: C5 D83 J31 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2008
New Economics Papers: this item is included in nep-lab
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Citations: View citations in EconPapers (29)

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Working Paper: On-the-Job Search, Minimum Wages, and Labor Market Outcomes in an Equilibrium Bargaining Framework (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:cca:wpaper:91

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