On the Interaction between Public Sector Employment and Minimum Wage in a Search and Matching Model

Lucas Navarro and Mauricio Tejada

ILADES-UAH Working Papers from Universidad Alberto Hurtado/School of Economics and Business

Abstract: This paper incorporates a minimum wage to a search and matching model of the labor market with private and public sectors and two types of workers, high and low skilled. The model is structurally estimated using recent data for Chile, a country with a large fraction of employment in the public sector and a well known binding minimum wage. Results suggest a sizable productivity gap in favor of the private sector that, by a general equilibrum effect, is the main determinant of the bite of the minimum wage in both sectors observed in the data. Indeed, counterfactual experiments show that increasing productivity levels in the public sector to match those in the private sector has a large aggregate and distributive impact, reducing the fraction of minimum wage earners in the private sector almost by half. Our results highlight a previously unexplored margin of the effect of the minimum wage on the labor market.

Keywords: Search Frictions; Public Sector Employment; Minimum Wage (search for similar items in EconPapers)
JEL-codes: C51 J45 J64 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2017-08
New Economics Papers: this item is included in nep-dge
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ila:ilades:inv320

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