The Endogenous Determination of Minimum Wage

23 Pages Posted: 14 Apr 2000

See all articles by Gil S. Epstein

Gil S. Epstein

Bar-Ilan University - Department of Economics; IZA Institute of Labor Economics; University College London - CReAM - Centre for Research and Analysis of Migration

Shmuel Nitzan

Bar-Ilan University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: November 1999

Abstract

In this paper we study the endogenous determination of minimum wage employing a political-economic approach. A major objective of the paper is to clarify the crucial role of the strength of the workers' union and if political culture on the determination of the minimum wage.

In general, the equilibrium minimum wage differs from that postulated in the literature. In our uncertain enviroment the optimal minimum wage from the workers' union point of view is lower than the level that maximizes its objective function in a certain environment where there is no opposition to the proposed minimum wage. We establish that a political culture tht assigns a positive weight to the public well being can rise to a wage that equals or exceeds these levels.

Keywords: Minimum wage, endogenous determination, political culture, public policy

JEL Classification: J3, J5, J38

Suggested Citation

Epstein, Gil S. and Nitzan, Shmuel, The Endogenous Determination of Minimum Wage (November 1999). IZA Discussion Paper No. 73. Available at SSRN: https://ssrn.com/abstract=193608

Gil S. Epstein (Contact Author)

Bar-Ilan University - Department of Economics ( email )

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HOME PAGE: http://faculty.biu.ac.il/~epsteig/

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Shmuel Nitzan

Bar-Ilan University - Department of Economics ( email )

Ramat-Gan, 52900
Israel
+972.3.531.8930 (Phone)
+972.3.535.3180 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

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Germany

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