Hostname: page-component-89b8bd64d-ksp62 Total loading time: 0 Render date: 2026-05-05T19:05:56.219Z Has data issue: false hasContentIssue false
  • English
  • Français

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.
Get access Rights & Permissions [Opens in a new window]

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

Information

Type
Articles
Information
Macroeconomic Dynamics , Volume 17 , Issue 7 , October 2013 , pp. 1411 - 1437
Copyright
Copyright © Cambridge University Press 2012 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Article purchase

Temporarily unavailable

References

REFERENCES

Blanchard, Olivier J. and Kiyotaki, Nobuhiro (1987) Monopolistic competition and the effects of aggregate demand. American Economic Review 77, 647–666.Google Scholar
Cahuc, Pierre, Saint-Martin, Anne, and Zylberberg, André (2001) The consequences of minimum wage when other wages are bargained over. European Economic Review 45, 337–352.CrossRefGoogle Scholar
Card, David and Krueger, Alan B. (1995) Myth and Measurement: The New Economy of the Minimum Wage. Princeton, NJ: Princeton University Press.Google Scholar
Cooper, Ross W. (1999) Coordination Games: Complementarities and Macroeconomics. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
Dickens, Richard, Machin, Stephen, and Manning, Alan (1999) The effects of minimum wage on employment: Theory and evidence from Britain. Journal of Labor Economics 17, 1–22.CrossRefGoogle Scholar
Julien, Ludovic A. and Sanz, Nicolas (2007) Coûts de transaction, équilibres multiples avec chômage et concurrence monopolistique: Un réexamen du modèle WS-PS. Revue Economique 58, 311–330.CrossRefGoogle Scholar
Layard, Richard and Nickell, Stephen J. (1985) The cause of British unemployment. National Institute Economic Review 111, 62–85.CrossRefGoogle Scholar
Layard, Richard and Nickell, Stephen J. (1986) Unemployment in Britain. Economica 53 (Supplement), S121–S169.CrossRefGoogle Scholar
Lucas, Robert E. (1988) On the mechanics of economic development. Journal of Monetary Economics. 22, 3–42.CrossRefGoogle Scholar
Machin, Stephen and Manning, Alan (1994) The effects of minimum wages on wage dispersion and employment: Evidence from the U.K. Wages Councils. Industrial and Labor Relations Review 47, 319–329.CrossRefGoogle Scholar
Manning, Alan (1990) Imperfect competition, multiple equilibria and unemployment policy. In Conference Papers 1990, Economic Journal 100, 151–162.Google Scholar
Neumark, David and Wascher, William L. (2008) Minimum Wages. Cambridge, MA: The MIT Press.CrossRefGoogle Scholar
Oswald, Andrew J. (1982) The economic theory of the trade union. Economic Journal 92, 269–283.CrossRefGoogle Scholar
Romer, Paul M. (1986) Increasing returns and long-run growth. Journal of Political Economy 94, 1002–1037.CrossRefGoogle Scholar
Van der Berg, Gerard J. (2003) Multiple equilibria and minimum wages in labor markets with informational frictions and heterogenous production technologies. International Economic Review 44, 1337–1357.CrossRefGoogle Scholar
Wolfson, Paul and Belman, Dale (2004) The minimum wage: Consequences for prices and quantities in low-wage labor markets. Journal of Business and Economic Statistics 23, 296–311.CrossRefGoogle Scholar