Multiple Equilibria and Minimum Wages in Labor Markets with Informational Frictions and Heterogeneous Production Technologies

van den Berg, Gerard

Multiple Equilibria and Minimum Wages in Labor Markets with Informational Frictions and Heterogeneous Production Technologies

No 806, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: It is often argued that a mandatory minimum wage is binding only if the wage density displays a spike at it. In this paper we analyze a model with search frictions and heterogeneous production technologies, in which imposition of a minimum wage affects wages even though, after imposition, the lowest wage in the market exceeds the minimum wage. The model has multiple equilibria as a result of the fact that the reservation wage of the unemployed and the lowest production technology in use affect each other. Imposition of a minimum wage may improve social welfare.

Keywords: matching; productivity; job search; unemployment; imperfect information; equilibrium; labor market policy; wages; congestion (search for similar items in EconPapers)
JEL-codes: C72 D83 J3 J42 J6 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2003-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (45)

Published - published in: International Economic Review, 2003, 44 (4), 1337-1357

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