Wage Posting in Two-Sided Search and the Minimum Wage

Adrian Masters

International Economic Review, 1999, vol. 40, issue 4, 809-26

Abstract: This article focuses on wage formation in an equilibrium (two-sided) model of search with match-specific heterogeneity. Despite a large number (a continuum) of employers, search provides sufficient isolation to generate market power. By posting wages, employers, without collusion, capture most of the surplus that accrues to any match. The equilibrium wage is below that which maximizes employment. An example, using calibrated parameter values, is used to reconcile some recent, otherwise contradictory empirical results on the employment effects of minimum wage adjustments. Copyright 1999 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Date: 1999
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