Rational Expectations and the Puzzling No-Effect of the Minimum Wage

Sara Pinoli

No 4933, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper argues that expectations are an important element that needs to be included into the analysis of the effects of the minimum wage on employment. We show in a standard matching model that the observed employment effect is higher the lower is the likelihood associated with the minimum wage variation. On the other side, there is a significant anticipation effect, ignored in the literature. This property is able to explain the controversial results found in the empirical studies. When the policy is anticipated, the effect at the time of the actual variation is small and potentially hard to identify. The model is tested on Spanish data, taking advantage of the unexpected change in the minimum wage following the election of Zapatero in 2004.

Keywords: minimum wage; expectations; heterogeneous matches (search for similar items in EconPapers)
JEL-codes: D21 J23 J38 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2010-05
New Economics Papers: this item is included in nep-dge and nep-lab
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Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Rational Expectations and the Puzzling No-E¤ect of the Minimum Wage (2010)
Working Paper: Rational Expectations and the Puzzling No-Effect of the Minimum Wage (2010)
Working Paper: Rational Expectations and the Puzzling No-Effect of the Minimum Wage (2008)
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