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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.
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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 

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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

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