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Title:Wage and employment effects of non-binding minimum wages PDF Logo
Authors:Dittrich, Marcus
Knabe, Andreas
Issue Date:2010
Series/Report no.:CESifo working paper Labour Markets 3149
Abstract:Common wisdom holds that the introduction of a non-binding minimum wage is irrelevant for actual wages and employment. Empirical and experimental research, however, has shown that the introduction of a minimum wage can raise even those wages that were already above the new minimum wage. In this paper, we analyze how these findings can be explained by theoretical wage bargaining models between unions and firms. While the Nash bargaining solution is unaffected by minimum wages below initially bargained wages, we show that such minimum wages can drive up wages - and be harmful to employment - when bargaining follows the Kalai-Smorodinsky solution.
Subjects:minimum wage
bargaining
Kalai-Smorodinsky solution
JEL:J38
C78
J52
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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