MINIMUM WAGE AND SEVERANCE PAYMENTS IN A FRICTIONAL LABOR MARKET: THEORY AND ESTIMATION

Carolina Silva

Macroeconomic Dynamics, 2017, vol. 21, issue 7, 1561-1600

Abstract: Wage dispersion is a critical factor in determining the impact of a minimum wage and severance payments on job creation and destruction in a general equilibrium model with search frictions. When wage dispersion is low, the minimum wage and severance payments behave as substitutes. However, as dispersion in wages increases, these policies become complements. The model is estimated using data from Chile and used to perform quantitative welfare analysis.

Date: 2017
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