A NOTE ON THE LARGE-FIRM MATCHING MODEL: CAN A NONBINDING MINIMUM WAGE REDUCE WAGES AND EMPLOYMENT?

Sofia Bauducco and Alexandre Janiak

Macroeconomic Dynamics, 2017, vol. 21, issue 8, 2158-2169

Abstract: We show that, in the large-firm search model, employment may decrease even when the level of the introduced minimum wage lies below the equilibrium wage of the laissez-faire economy. Wages also decrease in the presence of the minimum wage. The argument is based on multiple equilibria and the idea that, in a large-firm context, the representative firm may choose to overemploy workers in order to renegotiate lower wages.

Date: 2017
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