Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/260870 
Year of Publication: 
2022
Series/Report no.: 
CESifo Working Paper No. 9740
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
This paper theoretically investigates how labor-market tightness affects market outcomes if firms use informal and self-enforcing agreements to motivate workers. We characterize profit-maximizing equilibria and derive the following results. First, an increase in the supply of homogenous workers can increase wages. Second, even though all workers are identical in terms of skills or productivity, a discrimination equilibrium exists in which a group of majority workers are paid higher wages than a group of minority workers. Third, minimum wages can reduce such discrimination and increase employment. We discuss how these results are consistent with empirical evidence on immigration and a gender pay gap, and provide new testable implications.
Subjects: 
informal incentives
labor supply
immigration
wage discrimination
minimum wage
JEL: 
D21
D86
J21
J38
J61
J71
Document Type: 
Working Paper
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