Multiple Equilibria and Minimum Wages in Labor Markets with Informational Frictions and Heterogeneous Production Technologies

35 Pages Posted: 24 Jul 2003

See all articles by Gerard J. van den Berg

Gerard J. van den Berg

VU University Amsterdam - Department of Economics; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics; Tinbergen Institute

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Date Written: June 2003

Abstract

It is often argued that a mandatory minimum wage is binding only if the wage density displays a spike at it. In this paper we analyze a model with search frictions and heterogeneous production technologies, in which imposition of a minimum wage affects wages even though, after imposition, the lowest wage in the market exceeds the minimum wage. The model has multiple equilibria as a result of the fact that the reservation wage of the unemployed and the lowest production technology in use affect each other. Imposition of a minimum wage may improve social welfare.

Keywords: Wages, Productivity, Job Search, Unemployment, Imperfect information, Equilibrium, labor Market Policy, Matching, Congestion

JEL Classification: J3, D83, J42, J6, C72

Suggested Citation

van den Berg, Gerard J., Multiple Equilibria and Minimum Wages in Labor Markets with Informational Frictions and Heterogeneous Production Technologies (June 2003). IZA Discussion Paper No. 806; Tinbergen Institute Working Paper. Available at SSRN: https://ssrn.com/abstract=422544

Gerard J. Van den Berg (Contact Author)

VU University Amsterdam - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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IZA Institute of Labor Economics

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Tinbergen Institute

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