Employment Effects of Minimum Wages in Inflexible Labor Markets
29 Pages Posted: 26 Mar 2008
Date Written: 2007
This paper structurally models and estimates the employment effects of minimum wages in inflexible labor markets with fixed employment costs. When there are fixed costs associated with employment, minimum wage regulation not only results in a reduction in employment among low productivity workers but also shifts the distribution of hours for the available jobs in the market, resulting in scarcity of part-time jobs. Thus, for sufficiently high employment costs, a minimum wage makes it less likely for marginal workers to enter and stay in the labor market and has important employment effects. I estimate the model using survey data from Turkey. I find significant reduction in employment due to the loss of part time jobs caused by the national minimum wage policy in this highly inflexible labor market.
Keywords: Fixed employment costs, labor market inflexibility, minimum wage, female labor force participation
JEL Classification: J2,J3, E2
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