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  3. A note on the large firm matching model: Can a non-binding minimum wage reduce wages and employment?

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A note on the large firm matching model: Can a non-binding minimum wage reduce wages and employment?

  • person Alexandre Janiak

    Sofía Bauducco

  • class Macroeconomic Dynamics, 21, 2017, 2158–2169.

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.