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Title:Endogenous monopsony and the perverse effect of the minimum wage in small firms PDF Logo
Authors:Danziger, Leif
Issue Date:2009
Series/Report no.:IZA Discussion Papers 4320
Abstract:The minimum wage rate has been introduced in many countries as a means of alleviating the poverty of the working poor. This paper shows, however, that an imperfectly enforced minimum wage rate causes small firms to face an upward-sloping labor supply schedule. Since this turns these firms into endogenous monopsonists, the minimum wage rate has the perverse effect of reducing employment in small firms as well as what these firms offer their workers. Thus, if there are only small firms, the minimum wage rate makes all workers that would be employed in the absence of a minimum wage rate worse off.
Subjects:Endogenous monopsony
minimum wage
noncompliance
small firms
JEL:J38
Persistent Identifier of the first edition:urn:nbn:de:101:1-20090825591
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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