Do Frictions Matter in the Labor Market? Accessions, Separations and Minimum Wage Effects

41 Pages Posted: 4 Jul 2011

See all articles by Arindrajit Dube

Arindrajit Dube

University of California, Berkeley - Institute for Research on Labor and Employment

T. William Lester

University of California, Berkeley - Institute of Industrial Relations

Michael Reich

University of California, Berkeley - Department of Economics

Abstract

We measure labor market frictions using a strategy that bridges design-based and structural approaches: estimating an equilibrium search model using reduced-form minimum wage elasticities identified from border discontinuities and fitted with Bayesian and LIML methods. We begin by providing the first test of U.S. minimum wage effects on labor market flows and find negative effects on employment flows, but not levels. Separations and accessions fall among restaurants and teens, especially those with low tenure. Our estimated parameters of a search model with wage posting and heterogeneous workers and firms imply that frictions help explain minimum wage effects.

Keywords: minimum wage, labor market flows, monopsony, Bayesian estimation

JEL Classification: C11, C63, J23, J38, J42, J63

Suggested Citation

Dube, Arindrajit and Lester, T. William and Reich, Michael, Do Frictions Matter in the Labor Market? Accessions, Separations and Minimum Wage Effects. IZA Discussion Paper No. 5811. Available at SSRN: https://ssrn.com/abstract=1877624

Arindrajit Dube (Contact Author)

University of California, Berkeley - Institute for Research on Labor and Employment ( email )

2521 Channing Way #5555
Berkeley, CA 94720
United States
510-642-9951 (Phone)

HOME PAGE: http://www.irle.berkeley.edu/cwed/dube.html

T. William Lester

University of California, Berkeley - Institute of Industrial Relations ( email )

Berkeley, CA 94720
United States

Michael Reich

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States
510-643-7079 (Phone)
510-642-6432 (Fax)

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