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Employment and Distribution Effects of the Minimum WageFabian SlonimczykNational Research University Higher School of Economics Peter SkottUniversity of Massachusetts at Amherst - College of Social and Behavioral Sciences - Department of Economics; University of Aarhus - Department of Economics March 26, 2010 Abstract: This paper analyzes the effects of the minimum wage on wage inequality, relative employment and over-education. Using an efficiency wage model we show that over-education can be generated endogenously and that an increase in the minimum wage can raise both total and low-skill employment, and produce a fall in inequality. Evidence from the US suggests that these theoretical results are empirically relevant. The over-education rate has been increasing and our regression analysis suggests that the decrease in the minimum wage may have led to a deterioration of the employment and relative wage of low-skill workers.
Number of Pages in PDF File: 27 Keywords: Minimum wage, earnings inequality, monopsony, efficiency wage, over-education JEL Classification: J31, J41, J42 working papers seriesDate posted: April 28, 2010Suggested CitationContact Information
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