Biblioteca

A Note on the Large-firm Matching Model: Can a Nonbinding Minimum Wage Reduce Wages and Employment?

Alexandre Janiak; Sofía Bauducco

Macroeconomic Dynamics, on line desde 2016

Abstract: We show that, in the large-firm search model, employment may decrease even when the level of the introduced minimum wage lies below the equilibrium wage of the laissez-faire economy. Wages also decrease in the presence of the minimum wage. The argument is based on multiple equilibria and the idea that, in a large-firm context, the representative
firm may choose to overemploy workers in order to renegotiate lower wages.

Keywords: Minimum Wage, Employment, Search, Large Firm

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