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Publication - Professor Gerard Van den Berg

    Multiple equilibria and minimum wages in labor markets with informational frictions and heterogeneous production technologies

    Citation

    Van den Berg, GJ, 2003, ‘Multiple equilibria and minimum wages in labor markets with informational frictions and heterogeneous production technologies’. International Economic Review, vol 44., pp. 1337-1357

    Abstract

    It is often argued that a mandatory minimum wage is binding only if the wage density displays a spike at it. In this article, 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.

    Full details in the University publications repository