Analyzing the Effects of Minimum Wages: A Microeconomic Approach

42 Pages Posted: 22 Nov 2017 Last revised: 20 Oct 2019

See all articles by Clemens Thielen

Clemens Thielen

Technical University of Munich, TUM Campus Straubing for Biotechnology and Sustainability

Philipp Weinschenk

University of Kaiserslautern; Max Planck Institute for Research on Collective Goods

Date Written: September 20, 2019

Abstract

We analyze the effects of minimum wages in a simple microeconomic model where several principals (potential employers) compete for one or several agents (workers) via their wage offers. A minimum wage changes this game by prohibiting wage offers below the imposed minimum wage, which results in interesting, novel effects. We show that minimum wages could harm agents even if these stay employed, while principals may benefit from minimum wages. Furthermore, a minimum wage may also influence the generated surplus when leaving employment unaffected, and destroy jobs that generate relatively high levels of surplus when affecting employment. We provide a full characterization of the effects and show that these hold for a variety of different bargaining procedures, as well as in the setting of stable outcomes.

Keywords: Minimum Wages, Principal-Agent Model, Bargaining, Stable Outcomes

JEL Classification: C78, D21, J20, J31, J38, K31

Suggested Citation

Thielen, Clemens and Weinschenk, Philipp, Analyzing the Effects of Minimum Wages: A Microeconomic Approach (September 20, 2019). Available at SSRN: https://ssrn.com/abstract=3074494 or http://dx.doi.org/10.2139/ssrn.3074494

Clemens Thielen (Contact Author)

Technical University of Munich, TUM Campus Straubing for Biotechnology and Sustainability ( email )

Essigberg 3
Straubing, 94315
Germany

Philipp Weinschenk

University of Kaiserslautern ( email )

Paul-Ehrlich-Straße 14
Kaiserslautern, D-67663
Germany

HOME PAGE: http://https://vwl-mikro.wiwi.uni-kl.de/team/prof-dr-philipp-weinschenk/

Max Planck Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany

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