Optimal Design and Quantitative Evaluation of the Minimum Wage

Pau Pujolas and Zachary Mahone

Department of Economics Working Papers from McMaster University

Abstract: We study a labor market where firms have private information about their ex-ante heterogeneous productivities and search is random. In this environment, a binding minimum wage can be efficiency-enhancing - we show that setting it using a version of the Vickery-Clarke-Groves mechanism delivers full efficiency. In a dynamic, stochas-tic version of the model calibrated to the Routine Manual labor market in the U.S., our proposed mechanism generates sizeable welfare gains. The resulting minimum wage is procyclical, dampening the response of unemployment to aggregate shocks.

Keywords: Minimum Wage Determination; Business-cycle; Vickrey-Clarke-Groves Auction (search for similar items in EconPapers)
JEL-codes: J2 J3 J5 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2017-11-09
New Economics Papers: this item is included in nep-dge and nep-lma
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Persistent link: https://EconPapers.repec.org/RePEc:mcm:deptwp:2017-15

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