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A theory of minimum wage compliance (or voluntary recognition of unions)

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  • Masters, Adrian

Abstract

An urn-ball matching model of the labor market is used to develop a theory of minimum wage compliance or voluntary recognition of unions. Workers can direct their search but, in the absence of wage commitment from the firms, they have no basis to do so. The default means of wage formation in one-on-one matches is Nash bargaining. When there are multiple applicants competition drives the workers down to their continuation value. By attracting more applicants, a binding wage floor provides a means for firms to increase matching rates and improve match quality. An otherwise poorly enforced minimum wage acts as a commitment device for the payment of more generous wages.

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  • Masters, Adrian, 2010. "A theory of minimum wage compliance (or voluntary recognition of unions)," Labour Economics, Elsevier, vol. 17(1), pages 215-223, January.
    • Handle: RePEc:eee:labeco:v:17:y:2010:i:1:p:215-223
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    Cited by:

    1. Poeschel, Friedrich, 2018. "Why do employers not pay less than advertised? Directed search and the Diamond paradox," MPRA Paper 87920, University Library of Munich, Germany.

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