Minimum Wage and Employer Variety

Priyaranjan Jha and Antonio Rodriguez-Lopez

No 9312, CESifo Working Paper Series from CESifo

Abstract: Exploiting minimum wage variation within multi-state commuting zones, we document a neg-ative relationship between minimum wages and establishment counts in the United States. To explain this finding, we construct a heterogeneous-firm model with a monopsonistic labor mar-ket and endogenous firm variety. The decentralized equilibrium underprovides the mass of firms compared to the outcome achieved by a welfare-maximizing planner. A binding minimum wage further reduces the mass of firms, exacerbating the distortion. Workers value employer variety, and thus, by reducing firm variety the minimum wage reduces workers' welfare even if the average wage increases. Based on estimated elasticities, our model predicts that a 10 percent minimum wage hike reduces workers' welfare by 1:87 percent.

Keywords: minimum wage; number for firms; love of employer variety (search for similar items in EconPapers)
JEL-codes: J38 J42 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-cwa and nep-ore
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_9312

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