The Endogenous Determination of Minimum Wage
23 Pages Posted: 14 Apr 2000
Date Written: November 1999
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
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