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Minimum Wages in an Equilibrium Search Model with Diminishing Returns to Labor in Production

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  • Swinnerton, Kenneth A

Abstract

This article analyzes a minimum wage in a market with imperfect information and job search. It establishes that employment effects of a minimum wage do not generally indicate welfare effects. It shows that researchers interested in welfare consequences should ask two questions. First, is the existing minimum wage binding? Second, do some firms that would be bound by a new minimum wage presently experience labor shortages? If the answers to these questions are no and yes, respectively, this article supports the conclusion that a higher minimum wage is welfare improving, regardless of its effect on the unemployment rate. Copyright 1996 by University of Chicago Press.

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  • Swinnerton, Kenneth A, 1996. "Minimum Wages in an Equilibrium Search Model with Diminishing Returns to Labor in Production," Journal of Labor Economics, University of Chicago Press, vol. 14(2), pages 340-355, April.
    • Handle: RePEc:ucp:jlabec:v:14:y:1996:i:2:p:340-55
    DOI: 10.1086/209814
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    References listed on IDEAS

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    1. Charles Brown & Curtis Gilroy & Andrew Kohen, 1982. "The Effect of the Minimum Wage on Employment and Unemployment: A Survey," NBER Working Papers 0846, National Bureau of Economic Research, Inc.
    2. Brown, Charles & Gilroy, Curtis & Kohen, Andrew, 1982. "The Effect of the Minimum Wage on Employment and Unemployment," Journal of Economic Literature, American Economic Association, vol. 20(2), pages 487-528, June.
    3. Lloyd G. Reynolds, 1965. "Wages, Productivity and Industrialization," International Economic Association Series, in: E. A. G. Robinson (ed.), Problems in Economic Development, chapter 0, pages 311-319, Palgrave Macmillan.
    4. Albrecht, James W & Axell, Bo, 1984. "An Equilibrium Model of Search Unemployment," Journal of Political Economy, University of Chicago Press, vol. 92(5), pages 824-840, October.
    5. Lawrence F. Katz & Alan B. Krueger, 1992. "The Effect of the Minimum Wage on the Fast-Food Industry," ILR Review, Cornell University, ILR School, vol. 46(1), pages 6-21, October.
    6. Lawrence Katz & Alan Krueger, 1992. "The Effect of the Minimum Wage on the Fast Food Industry," Working Papers 678, Princeton University, Department of Economics, Industrial Relations Section..
    7. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
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    Cited by:

    1. Carol Ann Rogers & Kenneth A. Swinnerton, 2008. "A theory of exploitative child labor," Oxford Economic Papers, Oxford University Press, vol. 60(1), pages 20-41, January.
    2. Gorostiaga, Arantza & Rubio-Ramirez, Juan F., 2007. "Optimal minimum wage in a competitive economy: An alternative modelling approach," Economic Modelling, Elsevier, vol. 24(5), pages 778-796, September.
    3. Boadway, Robin & Cuff, Katherine, 2001. "A minimum wage can be welfare-improving and employment-enhancing," European Economic Review, Elsevier, vol. 45(3), pages 553-576, March.
    4. Luis Eduardo Arango & Paula Herrera & Carlos Esteban Posada, 2008. "El salario mínimo: aspectos generales sobre los casos de Colombia y otros países," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República, vol. 26(56), pages 204-263, June.
    5. Marcus Dittrich, 2010. "Minimum Wages and Unemployment Benefits in a Unionized Economy: A Game-Theoretic Approach," Annals of Economics and Finance, Society for AEF, vol. 11(2), pages 209-229, November.
    6. Arantza Gorostiaga & Juan F. Rubio-Ramirez, 2004. "Optimal minimum wage in a competitive economy," FRB Atlanta Working Paper 2004-30, Federal Reserve Bank of Atlanta.
    7. Lee, David & Saez, Emmanuel, 2012. "Optimal minimum wage policy in competitive labor markets," Journal of Public Economics, Elsevier, vol. 96(9-10), pages 739-749.
    8. Katerina Sherstyuka & Dolgorsuren Dorjb & Gerard Russo, 2014. "Health Insurance and the Labor Market with Wage Rigidities: Insights from a Laboratory Experiment," Working Papers 201427, University of Hawaii at Manoa, Department of Economics.
    9. Lavecchia, Adam M., 2020. "Minimum wage policy with optimal taxes and unemployment," Journal of Public Economics, Elsevier, vol. 190(C).
    10. Pau S. Pujolas & Zachary L. Mahone, 2017. "Optimal Design and Quantitative Evaluation of the Minimum Wage," Department of Economics Working Papers 2017-15, McMaster University.
    11. Gavrel, Frédéric & Lebon, Isabelle & Rebière, Thérèse, 2010. "Wages, selectivity, and vacancies: Evaluating the short-term and long-term impact of the minimum wage on unemployment," Economic Modelling, Elsevier, vol. 27(5), pages 1274-1281, September.
    12. Shrimoyee Ganguly & Rajat Acharyya, 2021. "Trade liberalization, export quality, and three dimensions of wage inequality," Review of Development Economics, Wiley Blackwell, vol. 25(4), pages 2157-2179, November.
    13. Gerard J. van den Berg, 2003. "Multiple Equilibria and Minimum Wages in Labor Markets with Informational Frictions and Heterogeneous Production Technologies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(4), pages 1337-1357, November.
    14. repec:pri:cepsud:178lee is not listed on IDEAS
    15. Agell, Jonas & Lommerud, Kjell Erik, 1997. "Minimum wages and the incentives for skill formation," Journal of Public Economics, Elsevier, vol. 64(1), pages 25-40, April.
    16. David S. Lee & Emmanuel Saez, 2008. "Optimal Minimum Wage Policy in Competitive Labor Markets," Working Papers 1105, Princeton University, Department of Economics, Industrial Relations Section..
    17. Flinn, Christopher, 2003. "Minimum Wage Effects on Labor Market Outcomes under Search with Bargaining," IZA Discussion Papers 949, Institute of Labor Economics (IZA).
    18. Lee, David & Saez, Emmanuel, 2012. "Optimal minimum wage policy in competitive labor markets," Journal of Public Economics, Elsevier, vol. 96(9-10), pages 739-749.

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