The Ambiguous Effect of Minimum Wages on Workers and Total Hours
Ecole Polytechnique, Paris - Department of Economic Sciences; Institute for the Study of Labor (IZA)
National University of Ireland - University College Dublin
IZA Discussion Paper No. 3643
We model a competitive labour market where firms choose combinations of workers and hours per worker to produce output. If one assumes that the scale of production has no impact on hours per worker, then the change in the number of workers and hours per worker resulting from a minimum wage are inversely related. We demonstrate that total hours worked at the firm may rise for plausible parameter values if there are small fixed costs to hiring workers. Thus, in contrast to the conventional view, we show that the effect of minimum wages on employment is ambiguous.
Number of Pages in PDF File: 25
Keywords: minimum wages, hours, employment
JEL Classification: J22, J38working papers series
Date posted: August 18, 2008
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