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The Minimum Wage in a Roy Model with Monopsony

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  • Darius Daniel Martin

    (Western Washington University)

Abstract

I propose and estimate a structural model of the labor market that features agents who are heterogeneous in both productivity and reservation wages, and a monopsony employer bound by the minimum wage. I examine the consequences of alternative minimum wage regimes. My results indicate that under a $15 federal minimum wage, at least 1.58 million lower-skilled women aged between 24 and 55 who worked for less than $15 per hour in 2017 would lose their jobs and be involuntarily excluded from labor market participation. The remaining 11.21 million would see their wage rise to the new minimum. The $15 minimum would also encourage an additional 2.74 million women to enter the labor force.

Suggested Citation

  • Darius Daniel Martin, 2021. "The Minimum Wage in a Roy Model with Monopsony," Journal of Labor Research, Springer, vol. 42(3), pages 358-381, December.
    • Handle: RePEc:spr:jlabre:v:42:y:2021:i:3:d:10.1007_s12122-021-09320-z
    DOI: 10.1007/s12122-021-09320-z
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    More about this item

    Keywords

    Minimum wage; Monopsony; Heterogeneous agents; Roy model;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets

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