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BINDING MINIMUM WAGE AS AN EQUILIBRIUM SELECTION DEVICE

Published online by Cambridge University Press:  09 May 2012

Julie Beugnot
Julie Beugnot*
Affiliation:
CIRPÉE—Université Laval
*
Address correspondence to: Julie Beugnot, Office 2116, Pavillon JA DeSève, Département d'Économique, Université Laval, Québec, Qc G1K 7P4, Canada; e-mail: julie.beugnot@ecn.ulaval.ca.
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Abstract

This paper investigates the effects of a binding minimum wage in an economy which exhibits multiple unemployment equilibria. For this purpose, we develop a theoretical model based on the simple imperfectly competitive model of Manning [In Conference Papers, Economic Journal 100, 151–162 (1990)], in which we introduce labor heterogeneity and knowledge spillovers in the individual production technology. Then, using numerical simulations, we show that a binding minimum wage rules out the occurrence of an inefficient equilibrium. Last, we analyze the effects of a minimum wage increase on the labor market's outcomes.

Keywords

Multiple EquilibriaBinding Minimum WageDecentralized Wage BargainingMonopolistic Competition
Type
Articles
Information
Macroeconomic Dynamics , Volume 17 , Issue 7 , October 2013 , pp. 1411 - 1437
Copyright
Copyright © Cambridge University Press 2012 

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