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A Note On The Large-Firm Matching Model: Can A Nonbinding Minimum Wage Reduce Wages And Employment?

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  • Bauducco, Sofía
  • Janiak, Alexandre

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.

Suggested Citation

  • Bauducco, Sofía & Janiak, Alexandre, 2017. "A Note On The Large-Firm Matching Model: Can A Nonbinding Minimum Wage Reduce Wages And Employment?," Macroeconomic Dynamics, Cambridge University Press, vol. 21(8), pages 2158-2169, December.
    • Handle: RePEc:cup:macdyn:v:21:y:2017:i:08:p:2158-2169_00
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