Wages, selectivity, and vacancies: Evaluating the short-term and long-term impact of the minimum wage on unemployment

Frédéric Gavrel, Isabelle Lebon and Therese Rebiere

Economic Modelling, 2010, vol. 27, issue 5, 1274-1281

Abstract: Using a circular matching model (Marimon R, Zilibotti F. Unemployment vs. mismatch of talents: Reconsidering unemployment benefits. Economic Journal 1999;109; 266-291), where the wage setting is similar to Weiss (Weiss A. Job queues and layoffs in labor markets with flexible wages. Journal of Political Economy 1980; 88; 526-538), we reexamine Card and Krueger's (Card, D., Krueger, A. Myth and Measurement, the New Economics of the Minimum Wage. Princeton University Press; 1995) intuition on the impact of the minimum wage on unemployment. In the short term, a rise in the minimum wage increases the employment level by making firms less selective. In the long term, numerical simulations show that, despite the reduction of job creation, introducing a minimum wage may lower unemployment as soon as workers and jobs are sufficiently differentiated. However, beyond some limit, the wage increase raises unemployment whatever the degree of differentiation is.

Keywords: Differentiation; of; skills; Hiring; Minimum; wage; Search; unemployment (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (4)

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