Hostname: page-component-586b7cd67f-g8jcs Total loading time: 0 Render date: 2024-11-24T17:04:21.608Z Has data issue: false hasContentIssue false
  • English
  • Français

A NOTE ON THE LARGE-FIRM MATCHING MODEL: CAN A NONBINDING MINIMUM WAGE REDUCE WAGES AND EMPLOYMENT?

Published online by Cambridge University Press:  08 April 2016

Sofía Bauducco  and
Alexandre Janiak
Sofía Bauducco
Affiliation:
Central Bank of Chile
Alexandre Janiak*
Affiliation:
University of Chile
*
Address correspondence to: Alexandre Janiak, Department of Industrial Engineering, University of Chile, Republica 701, Santiago, Chile; e-mail: ajaniak@gmail.com.
Get access Rights & Permissions [Opens in a new window]

Abstract

We show that, in the large-firm search model, employment may decrease even when the level of the introduced minimum wage lies below the equilibrium wage of the laissez-faire economy. Wages also decrease in the presence of the minimum wage. The argument is based on multiple equilibria and the idea that, in a large-firm context, the representative firm may choose to overemploy workers in order to renegotiate lower wages.

Keywords

Minimum WageEmploymentSearchLarge Firm
Type
Notes
Information
Macroeconomic Dynamics , Volume 21 , Issue 8 , December 2017 , pp. 2158 - 2169
Copyright
Copyright © Cambridge University Press 2016 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

We would like to thank the editor and a referee for valuable comments. We acknowledge funding from CONICYT PIA (Anillo Project SOC 1402 on “Search models: Implications for markets, social interactions and public policy”). Alexandre Janiak also thanks Fondecyt (Project 1151053) and the Milennium Institute for Research in Market Imperfections and Public Policy (ICM IS130002, Ministerio de Economa, Fomento y Turismo). All errors are our own.

References

REFERENCES

Bauducco, Sofía and Janiak, Alexandre (2014) The Impact of the Minimum Wage on Capital Accumulation and Employment in a Large-Firm Framework. CEA Working paper 309.Google Scholar
Cahuc, Pierre, Marque, François, and Wasmer, Etienne (2008) A theory of wages and labor demand with intrafirm bargaining and matching frictions. International Economic Review 48, 943–972.Google Scholar
Cahuc, Pierre and Wasmer, Etienne (2001) Does intrafirm bargaining matter in the large firm's matching model? Macroeconomic Dynamics 5, 742–747.CrossRefGoogle Scholar
Krueger, Dirk, Perri, Fabrizio, Pistaferri, Luigi, and Violante, Giovanni L. (2010) Cross-sectional facts for macroeconomists. Review of Economic Dynamics 13, 1–14.CrossRefGoogle Scholar
Krusell, Per, Ohanian, Lee E., Ríos-Rull, José-Víctor, and Violante, Giovanni L. (2000) Capital–skill complementarity and inequality: A macroeconomic analysis. Econometrica 68, 1029–1053.Google Scholar
Manning, Alan (2003) Monopsony in Motion: Imperfect Competition in Labor Markets. Princeton, NJ: Princeton University Press.Google Scholar
Pissarides, Christopher A. (1985) Short-run equilibrium dynamics of unemployment, vacancies, and real wages. American Economic Review 75, 676–690.Google Scholar
Pissarides, Christopher A. (2009) The unemployment volatility puzzle: Is wage stickiness the answer? Econometrica 77, 1339–1369.Google Scholar
Stigler, George J. (1946) The economics of minimum wage legislation. American Economic Review 36, 358–365.Google Scholar