Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Minimum wages, wage dispersion and unemployment in search models. Areview

Minimum wages, wage dispersion and unemployment in search models. Areview Facing the recent German debate on the minimum wage, this paper analyses theoretical effects of minimum wages on employment and wage distribution under a frictional setting. I  review new developments in search theory and discuss the influence of the minimum wage on wages and employment under each setting. Therefore, a major theoretical focus of the paper is the integration of heterogeneity on both sides of the market in equilibrium search models. In frictional models, minimum wages are generally binding and redistribute rents from firms to workers. Employment effects are more diverse. In the homogeneous case where workers and firms are identical, minimum wages do not affect employment, while in the heterogenous case theoretical results are mixed. There is no unique connection between unemployment and minimum wages, and the effect can be negative, zero or even positive. A positive effect can arise from a reaction in labor supply. However, the most advanced models, integrating heterogeneity on both sides of the market, seem to support the hypothesis that an increase in the minimum wage generally leads to an increase in unemployment as well. In this case, a social planner faces a trade off between redistribution of rents and unemployment. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal for Labour Market Research Springer Journals

Minimum wages, wage dispersion and unemployment in search models. Areview

Garloff, Alfred
Journal for Labour Market Research , Volume 43 (2) – Oct 2, 2010
Download PDF
23 pages

Loading next page...
 
/lp/springer-journals/minimum-wages-wage-dispersion-and-unemployment-in-search-models-Ja6bNyD0Ui
Publisher
Springer Journals
Copyright
Copyright © 2010 by Institut für Arbeitsmarkt- und Berufsforschung
Subject
Economics; Labor Economics; Sociology, general; Human Resource Management; Economic Policy; Regional/Spatial Science; Population Economics
ISSN
1614-3485
eISSN
1867-8343
DOI
10.1007/s12651-010-0040-8
Publisher site
See Article on Publisher Site

Abstract

Facing the recent German debate on the minimum wage, this paper analyses theoretical effects of minimum wages on employment and wage distribution under a frictional setting. I  review new developments in search theory and discuss the influence of the minimum wage on wages and employment under each setting. Therefore, a major theoretical focus of the paper is the integration of heterogeneity on both sides of the market in equilibrium search models. In frictional models, minimum wages are generally binding and redistribute rents from firms to workers. Employment effects are more diverse. In the homogeneous case where workers and firms are identical, minimum wages do not affect employment, while in the heterogenous case theoretical results are mixed. There is no unique connection between unemployment and minimum wages, and the effect can be negative, zero or even positive. A positive effect can arise from a reaction in labor supply. However, the most advanced models, integrating heterogeneity on both sides of the market, seem to support the hypothesis that an increase in the minimum wage generally leads to an increase in unemployment as well. In this case, a social planner faces a trade off between redistribution of rents and unemployment.

Journal

Journal for Labour Market Research – Springer Journals

Published: Oct 2, 2010

References

  • High wage workers and high wage firms
    Abowd, J.M.; Kramarz, F.; Margolis, D.N.
  • The structure of wages and investment in general training
    Acemoglu, D.; Pischke, J.-S.
  • Wage and technology dispersion
    Acemoglu, D.; Shimer, R.
  • Mindestlöhne in Deutschland. Beschäftigungswirkungen und fiskalische Effekte
    Bachmann, R.; Bauer, T.K.; Kluve, J.; Schaffner, S.; Schmidt, C.M.
  • European unemployment: The evolution of facts and ideas
    Blanchard, O.
  • At Home and Abroad: U.S. Labor Market Performance in International Perspective
    Blau, F.D.; Kahn, L.M.
  • Equilibrium search with continuous productivity dispersion: Theory and nonparametric estimation
    Bontemps, C.; Robin, J.-M.; Berg, G.J.
  • Mindestlöhne vermeiden Armut nicht
    Börsch-Supan, A.
  • Mindestlohn in Deutschland notwendig. Kein Gegensatz zwischen sozialer Gerechtigkeit und Beschäftigung
    Bosch, W.
  • Equilibrium price dispersion
    Burdett, K.; Judd, K.
  • Wage differentials, employer size, and unemployment
    Burdett, K.; Mortensen, D.T.
  • Wage bargaining with on-the-job search: Theory and evidence
    Cahuc, P.; Postel-Vinay, F.; Robin, J.-M.
  • Le Marché du Travail
    Cahuc, P.; Zylberberg, A.
  • Labor Economics
    Cahuc, P.; Zylberberg, A.
  • Empirical Labor Economics
    Devine, T.J.; Kiefer, N.M.
  • A model of price adjustment
    Diamond, P.A.
  • Optimization in Economic Theory
    Dixit, A.
  • Revisiting the german wage structure
    Dustmann, C.; Ludsteck, J.; Schönberg, U.
  • Wages and Employment across Skill-Groups in West Germany during the 1970s and 1980s. ZEW Economic Studies, vol.  6
    Fitzenberger, B.
  • Anmerkungen zur Mindestlohndebatte. Elastizitäten, Strukturparameter und Topfschlagen
    Fitzenberger, B.
  • Labor market transitions and the wage structure in Germany
    Fitzenberger, B.; Garloff, A.
  • Unemployment, labor market transitions and residual wage dispersion
    Fitzenberger, B.; Garloff, A.
  • Interpreting minimum wage effects on wage distributions: A cautionary tale
    Flinn, C.J.
  • Minimum wage effects on labor market outcomes under search, matching, and endogenous contact rates
    Flinn, C.J.
  • Arbeitsmarktökonomik
    Franz, W.
  • Der trügerische Charme des Mindestlohnes
    Franz, W.
  • Search equilibrium and social and private returns to education
    Holzner, C.; Launov, A.
  • The empirical content of the job search model: Labor mobility and wage distributions in Europe and the U.S.
    Jolivet, G.; Postel-Vinay, F.; Robin, J.-M.
  • Wage inequality and the rise in returns to skill
    Juhn, C.; Murphy, K.M.; Pierce, B.
  • Handbook of Labor Economics, vol.  3, Chap.  26
    Katz, L.; Autor, D.
  • Mindestlohneffekte des Entsendegesetzes? Eine Mikrodatenanalyse für die deutsche Bauwirtschaft
    König, M.; Möller, J.
  • Structural and frictional unemployment in an equilibrium search model with heterogenous agents
    Koning, P.; Ridder, G.; Van den Berg, G.J.
  • Increasing residual wage inequality: Composition effects, noisy data, or rising demand for skill?
    Lemieux, T.
  • Monopsony in Motion: Imperfect Competition in Labor Markets
    Manning, A.
  • The real thin theory: monopsony in modern labour markets
    Manning, A.
  • The economics of information and optimal stopping rules
    McCall, J.J.
  • Dynamic Econometric Modeling. Proceedings of the Third International Symposium in Economic Theory and Econometrics, Chap. 15
    Mortensen, D.T.; Neumann, G.R.
  • Panel Data and Labour Market Dynamics
    Mortensen, D.T.; Vishwanath, T.
  • Personal contacts and earnings: It is who you know!
    Mortensen, D.T.; Vishwanath, T.
  • Lohnrigiditäten in gemischten Lohnbildungssystemen
    Pfeiffer, F.
  • Equilibrium Unemployment Theory
    Pissarides, C.A.
  • Equilibrium wage dispersion with worker and employer heterogeneity
    Postel-Vinay, F.; Robin, J.-M.
  • The distribution of earnings in an equilibrium search model with state-dependent offers and counteroffers
    Postel-Vinay, F.; Robin, J.-M.
  • Advances in Economics and Econometrics: Theory and Applications, Chap. 4
    Ridder, G.; Berg, G.J.
  • Minimum wages in an equilibrium search model with diminishing returns to labor in production
    Swinnerton, K.A.
  • Beschäftigungswirkungen von Mindestlöhnen – Eine Erläuterung zu den Berechnungen des ifo Insituts
    Thum, M.; Ragnitz, J.
  • Empirical inference with equilibrium search models of the labour market
    Van den Berg, G.J.
  • Multiple equilibria and minimum wages in labor markets with informational frictions and heterogenous production technologies
    Berg, G.J.
  • Panel Data and Labour Market Dynamics, vol. 222 of Contributions to Economic Analysis
    Berg, G.J.; Ridder, G.
  • An empirical search model of the labor market
    Berg, G.J.; Ridder, G.
  • The effect of search frictions on wages. Discussion Paper No.  06-077/3
    Berg, G.J.; Vuuren, A.