Low-Wage Labor Markets and the Power of Suggestion

Natalya Shelkova ()

Review of Social Economy, 2015, vol. 73, issue 1, 61-88

Abstract: The paper argues that a non-binding minimum wage may serve as a focal point which facilities tacit collusion by low-wage employers, effectively pulling down wages of the lowest-paid workers. This can explain the puzzle as to why the minimum wage does not reduce employment, as predicted by the traditional economic theory. A simple game-theoretic argument explains when collusion emerges. The hypothesis is tested using the 1990-2002 CPS data on service occupation workers. The results suggest that during this period, on average 19.3%, and as much as 31% of service occupation workers, who earned minimum wage or less, could had been affected by collusive wage-setting.

Date: 2015
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Working Paper: Low-wage labor markets amd the power of suggestion (2008)
Working Paper: Low-Wage Labor Markets and the Power of Suggestion (2008)
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DOI: 10.1080/00346764.2014.960662

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