Analyzing the effects of minimum wages: a microeconomic approach

Clemens Thielen () and Philipp Weinschenk ()
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Clemens Thielen: Technical University of Munich
Philipp Weinschenk: University of Kaiserslautern-Landau

Economic Theory, 2025, vol. 79, issue 3, No 7, 945-991

Abstract: Abstract We use a microeconomic approach to analyze the effects of minimum wages. Agents are allowed to have different productivities at different principals as well as different costs of working. We obtain several new and interesting effects. Minimum wages could influence the generated surplus when leaving employment unaffected, and destroy jobs that generate relatively high levels of surplus when affecting employment. Furthermore, minimum wages could harm agents even if these stay employed, while principals could benefit from them. We provide a complete characterization of the effects and show that these hold independently of the specific bargaining procedure and information structure.

Keywords: Minimum wages; Principal-agent model; Costs of working; Welfare effects (search for similar items in EconPapers)
JEL-codes: C78 D21 J31 J38 K31 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s00199-024-01607-3

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