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The Ambiguous Effect of Minimum Wages on Workers and Total Hours

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Author Info
Strobl, Eric () (Ecole Polytechnique, Paris)
Walsh, Frank () (University College Dublin)

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Abstract

We model a competitive labour market where firms choose combinations of workers and hours per worker to produce output. If one assumes that the scale of production has no impact on hours per worker, then the change in the number of workers and hours per worker resulting from a minimum wage are inversely related. We demonstrate that total hours worked at the firm may rise for plausible parameter values if there are small fixed costs to hiring workers. Thus, in contrast to the conventional view, we show that the effect of minimum wages on employment is ambiguous.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3643.

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Length: 25 pages
Date of creation: Aug 2008
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Handle: RePEc:iza:izadps:dp3643

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Related research
Keywords: minimum wages hours employment

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Find related papers by JEL classification:
J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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  1. Richard Dickens & Alan Manning, 2004. "Spikes and spill-overs: The impact of the national minimum wage on the wage distribution in a low-wage sector," Economic Journal, Royal Economic Society, vol. 114(494), pages C95-C101, 03. [Downloadable!] (restricted)
  2. David Neumark & Mark Schweitzer & William Wascher, 2000. "The Effects of Minimum Wages Throughout the Wage Distribution," NBER Working Papers 7519, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Strobl, Eric & Walsh, Frank, 2007. "Dealing with monopsony power: Employment subsidies vs. minimum wages," Economics Letters, Elsevier, vol. 94(1), pages 83-89, January. [Downloadable!] (restricted)
  4. Bhaskar, V & To, Ted, 1999. "Minimum Wages for Ronald McDonald Monopsonies: A Theory of Monopsonistic Competition," Economic Journal, Royal Economic Society, vol. 109(455), pages 190-203, April. [Downloadable!] (restricted)
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  5. Kinoshita, Tomio, 1987. "Working Hours and Hedonic Wages in the Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 95(6), pages 1262-77, December. [Downloadable!] (restricted)
  6. De Fraja, Gianni, 1999. "Minimum Wage Legislation, Productivity and Employment," Economica, London School of Economics and Political Science, vol. 66(264), pages 473-88, November. [Downloadable!] (restricted)
  7. David Neumark & William Wascher, 2007. "Minimum Wages and Employment," IZA Discussion Papers 2570, Institute for the Study of Labor (IZA). [Downloadable!]
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This page was last updated on 2008-12-1.

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