Worker Heterogeneity and the Asymmetric Effects of Minimum Wages

Jose Luis Luna-Alpizar

CERGE-EI Working Papers from The Center for Economic Research and Graduate Education - Economics Institute, Prague

Abstract: This paper explores the notion that minimum wages affect different lowskilled workers asymmetrically due to productivity differences. In a search model with worker heterogeneity, a rising minimum wage lowers the employment and labor force participation of the least productive workers by pricing them out of the market, while having the opposite effect on other low-skilled workers that remain hirable. CPS data supports these predictions; a rise in the minimum reduces the employment and labor force participation of teenagers with less than high school education, but has the opposite effect on prime-age workers with high school attainment. The calibrated model requires small firm surpluses to match these observations. If firm surplus is small due to high nonmarket activity values, a moderate rise in the minimum improves aggregate welfare even when the worker's bargaining weight is high.

Keywords: minimum wages; search and matching; unemployment; worker heterogeneity (search for similar items in EconPapers)
JEL-codes: E24 J08 J38 J64 J68 (search for similar items in EconPapers)
Date: 2019-05
New Economics Papers: this item is included in nep-dge and nep-mac
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.cerge-ei.cz/pdf/wp/Wp642.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cer:papers:wp642

Access Statistics for this paper

More papers in CERGE-EI Working Papers from The Center for Economic Research and Graduate Education - Economics Institute, Prague Contact information at EDIRC.
Bibliographic data for series maintained by Lucie Vasiljevova ().