Wage and Employment Effects of Non-Binding Minimum Wages

Marcus Dittrich () and Andreas Knabe

No 3149, CESifo Working Paper Series from CESifo

Abstract: Common wisdom holds that the introduction of a non-binding minimum wage is irrelevant for actual wages and employment. Empirical and experimental research, however, has shown that the introduction of a minimum wage can raise even those wages that were already above the new minimum wage. In this paper, we analyze how these findings can be explained by theoretical wage bargaining models between unions and firms. While the Nash bargaining solution is unaffected by minimum wages below initially bargained wages, we show that such minimum wages can drive up wages – and be harmful to employment – when bargaining follows the Kalai-Smorodinsky solution.

Keywords: minimum wage; bargaining; Kalai-Smorodinsky solution (search for similar items in EconPapers)
JEL-codes: C78 J38 J52 (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Working Paper: Wage and employment effects of non-binding minimum wages (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_3149

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