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Minimum Wage and Employer Variety

Author

Listed:
  • Priyaranjan Jha
  • Antonio Rodriguez-Lopez

Abstract

Exploiting minimum wage variation within multi-state commuting zones, we document a neg-ative relationship between minimum wages and establishment counts in the United States. To explain this finding, we construct a heterogeneous-firm model with a monopsonistic labor mar-ket and endogenous firm variety. The decentralized equilibrium underprovides the mass of firms compared to the outcome achieved by a welfare-maximizing planner. A binding minimum wage further reduces the mass of firms, exacerbating the distortion. Workers value employer variety, and thus, by reducing firm variety the minimum wage reduces workers' welfare even if the average wage increases. Based on estimated elasticities, our model predicts that a 10 percent minimum wage hike reduces workers' welfare by 1:87 percent.

Suggested Citation

  • Priyaranjan Jha & Antonio Rodriguez-Lopez, 2021. "Minimum Wage and Employer Variety," CESifo Working Paper Series 9312, CESifo.
    • Handle: RePEc:ces:ceswps:_9312
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    References listed on IDEAS

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    More about this item

    Keywords

    minimum wage; number for firms; love of employer variety;
    All these keywords.

    JEL classification:

    • 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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