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On the Interaction between Public Sector Employment and Minimum Wage in a Search and Matching Model

Author

Listed:
  • Lucas Navarro

    (ILADES – Universidad Alberto Hurtado)

  • Mauricio Tejada

    (ILADES – Universidad Alberto Hurtado)

Abstract

This paper incorporates a minimum wage to a search and matching model of the labor market with private and public sectors and two types of workers, high and low skilled. The model is structurally estimated using recent data for Chile, a country with a large fraction of employment in the public sector and a well known binding minimum wage. Results suggest a sizable productivity gap in favor of the private sector that, by a general equilibrum effect, is the main determinant of the bite of the minimum wage in both sectors observed in the data. Indeed, counterfactual experiments show that increasing productivity levels in the public sector to match those in the private sector has a large aggregate and distributive impact, reducing the fraction of minimum wage earners in the private sector almost by half. Our results highlight a previously unexplored margin of the effect of the minimum wage on the labor market.

Suggested Citation

  • Lucas Navarro & Mauricio Tejada, 2017. "On the Interaction between Public Sector Employment and Minimum Wage in a Search and Matching Model," ILADES-UAH Working Papers inv320, Universidad Alberto Hurtado/School of Economics and Business.
    • Handle: RePEc:ila:ilades:inv320
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    Cited by:

    1. Feng, Shuaizhang & Guo, Naijia, 2021. "Labor market dynamics in urban China and the role of the state sector," Journal of Comparative Economics, Elsevier, vol. 49(4), pages 918-932.

    More about this item

    Keywords

    Search Frictions; Public Sector Employment; Minimum Wage;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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