Minimum Wage as a Focal Point

26 Pages Posted: 9 Oct 2014 Last revised: 12 Jul 2018

See all articles by Oz Shy

Oz Shy

Independent ; Federal Reserve Banks - Federal Reserve Bank of Atlanta

David Hao Zhang

Harvard University

Date Written: June 27, 2018

Abstract

Real wages in U.S. retail sectors exhibit years of stickiness around minimum wage, where only recently retailers have started raising wages. The paper provides a theoretical explanation for this long-term wage stickiness by exploring the possibility that firms may tacitly collude on paying the legal minimum wage. We find that firms start deviating from paying minimum wage after the gap between the competitive wage and minimum wage exceeds a certain level. Our findings do not necessarily imply that minimum wage is harmful. They only imply that low minimum wage may be holding wages down.

Keywords: Low minimum wage, wage collusion, wage competition, imperfectly-competitive labor markets, focal point, antitrust law

JEL Classification: J31, J38

Suggested Citation

Shy, Oz and Zhang, David Hao, Minimum Wage as a Focal Point (June 27, 2018). Available at SSRN: https://ssrn.com/abstract=2507035 or http://dx.doi.org/10.2139/ssrn.2507035

Oz Shy (Contact Author)

Independent ( email )

No Address Available

Federal Reserve Banks - Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

David Hao Zhang

Harvard University ( email )

Cambridge, MA
United States

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