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Participation, Recruitment Selection, and the Minimum Wage

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  • Frédéric Gavrel

    (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)

Abstract

In this paper, we re‐examine the efficiency of participation with heterogeneous workers in a search‐matching model with bargained wages and free entry. Assuming that firms hire their best applicants, we show that participation is always too low. The reason for this is a hold‐up phenomenon: to be active, a worker must pay the entire search cost whereas part of the gain from this investment goes to the firm. As a consequence, introducing a (small) minimum wage raises participation, job creation, and employment. Therefore, net aggregate income of the economy is increased.

Suggested Citation

  • Frédéric Gavrel, 2015. "Participation, Recruitment Selection, and the Minimum Wage," Post-Print halshs-01242505, HAL.
    • Handle: RePEc:hal:journl:halshs-01242505
    DOI: 10.1111/sjoe.12106
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01242505
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    1. repec:bla:scandj:v:100:y:1998:i:1:p:113-41 is not listed on IDEAS
    2. Gavrel, Frédéric, 2012. "On the inefficiency of matching models of unemployment with heterogeneous workers and jobs when firms rank their applicants," European Economic Review, Elsevier, vol. 56(8), pages 1746-1758.
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    8. Gavrel, Frédéric, 2009. "Technical skill bias as a response of firms to unemployment: A matching model with applicant ranking and endogenous skill requirements," Labour Economics, Elsevier, vol. 16(3), pages 304-310, June.
    9. Gavrel, Frédéric & Lebon, Isabelle & Rebière, Thérèse, 2012. "Minimum wage, on-the-job search and employment: On the sectoral and aggregate equilibrium effect of the mandatory minimum wage," Economic Modelling, Elsevier, vol. 29(3), pages 691-699.
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    12. Gavrel, Frédéric, 2011. "On the efficiency of participation with vertically differentiated workers," Economics Letters, Elsevier, vol. 112(1), pages 100-102, July.
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    Cited by:

    1. Ana Rute Cardoso, 2019. "Long‐Term Impact of Minimum Wages on Workers’ Careers: Evidence from Two Decades of Longitudinal Linked Employer–Employee Data," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(4), pages 1337-1380, October.
    2. Frédéric Gavrel & Thérèse Rebière, 2018. "On the equilibrium and welfare consequences of getting ahead of the Smiths," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 20(2), pages 257-270, April.
    3. Frédéric Gavrel & Thérèse Rebière, 2015. "On the Equilibrium and Welfare Consequences of Going Ahead of the Smiths," Working Papers halshs-01242504, HAL.

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    Keywords

    efficiency; Search and matching; heterogeneous workers; applicant ranking; public policies;
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