Multiple Equilibria and Minimum Wages in Labour Markets with Informational Frictions and Heterogenous Production Technologies

34 Pages Posted: 3 Sep 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

Date Written: July 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 analyse 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, labour market policy, matching, congestion

JEL Classification: C72, D83, J30, J42, J60

Suggested Citation

van den Berg, Gerard J., Multiple Equilibria and Minimum Wages in Labour Markets with Informational Frictions and Heterogenous Production Technologies (July 2003). CEPR Discussion Paper No. 3977. Available at SSRN: https://ssrn.com/abstract=440983

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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United Kingdom

IZA Institute of Labor Economics

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Bonn, D-53072
Germany

Tinbergen Institute

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Rotterdam, 3062 PA
Netherlands

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