Multiple Equilibria and Minimum Wages in Labour Markets with Informational Frictions and Heterogenous Production Technologies

Gerard van den Berg

No 3977, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: It is often argued that a mandatory minimum wage is binding only if the wage density displays a spike at it. In this Paper we analyse a model with search frictions and heterogeneous production technologies, in which imposition of a minimum wage affects wages even though, after imposition, the lowest wage in the market exceeds the minimum wage. The model has multiple equilibria as a result of the fact that the reservation wage of the unemployed and the lowest production technology in use affect each other. Imposition of a minimum wage may improve social welfare.

Keywords: Wages; Productivity; Job search; Unemployment; Imperfect information; Equilibrium; Labour market policy; Matching; Congestion (search for similar items in EconPapers)
JEL-codes: C72 D83 J30 J42 J60 (search for similar items in EconPapers)
Date: 2003-07
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Citations: View citations in EconPapers (32)

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Journal Article: Multiple Equilibria and Minimum Wages in Labor Markets with Informational Frictions and Heterogeneous Production Technologies (2003)
Working Paper: Multiple Equilibria and Minimum Wages in Labor Markets with Informational Frictions and Heterogeneous Production Technologies (2003)
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