Wage and price controls in the equilibrium sequential search model |
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Authors: | Michael T Rauh |
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Institution: | Department of Economics, University of North Dakota, P.O. Box 8369, Grand Forks, ND 58202-8369, USA |
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Abstract: | In this paper, we study the effects of wage and price controls on employment, output, and welfare in a simplified version of the Bénabou (J. Econom. Theory 60 (1993) 140) equilibrium sequential search model with bilateral heterogeneity. We show that a price ceiling increases output but the change in welfare depends on three effects: the reduction in aggregate search costs, the increase in surplus due to increased output, and the transfer of production to the least efficient firm. The model is formally identical to a standard equilibrium search model of the labor market so analogous results hold for the minimum wage. |
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Keywords: | D43 D83 |
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