Participation, Recruitment Selection, and the Minimum Wage

Frédéric Gavrel

Scandinavian Journal of Economics, 2015, vol. 117, issue 4, 1281-1305

Abstract: In this paper, we re-examine the efficiency of participation with heterogeneous workers in a search-matching model with bargained wages and free entry. Assuming that firms hire their best applicants, we show that participation is always too low. The reason for this is a hold-up phenomenon: to be active, a worker must pay the entire search cost whereas part of the gain from this investment goes to the firm. As a consequence, introducing a (small) minimum wage raises participation, job creation, and employment. Therefore, net aggregate income of the economy is increased.

Date: 2015
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Related works:
Working Paper: Participation, Recruitment Selection, and the Minimum Wage (2015)
Working Paper: Participation, Recruitment Selection, and the Minimum Wage (2014)
Working Paper: Participation, Recruitment Selection, and the Minimum Wage (2014)
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