Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/85570
Authors: 
van den Berg, Gerard J.
Year of Publication: 
1999
Series/Report no.: 
Tinbergen Institute Discussion Paper 99-085/3
Abstract: 
It is often argued that a mandatory minimum wage is binding only if the wage density displays a spike at it. In this paper we analyze a model with wage setting, search frictions, and heterogeneous production technologies, in which imposition of a minimum wage affects wages even though, after imposition, the lowest wage in the market exceeds the minimum wage, and subsequent abolition of the minimum wage does not affect wages. The model has multiple equilibria as a result of the fact that the reservation wage of the unemployed and the lowest production technology in use affect each other. Under certain conditions, imposition of a minimum wage improves social welfare.
Subjects: 
wages
productivity
job search
unemployment
imperfect information
Document Type: 
Working Paper

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