Minimum wage spillover effects and social welfare in a model of stochastic job matching |
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Authors: | Panagiotis Nanos |
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Affiliation: | 1. Department of Economics, University of Sheffield, Sheffield, United 2. Kingdom |
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Abstract: | In this paper, I carry out a welfare analysis of the minimum wage in the framework of a Diamond–Mortensen–Pissarides model with stochastic job matching. I explore the role of the minimum wage in a labor market with trading externalities and present the necessary and sufficient condition for a minimum wage hike to be efficiency enhancing. In this context, I characterize minimum wage spillover effects and demonstrate that there is a direct link between the welfare effects and spillover effects of a minimum wage. This theoretical finding suggests that the welfare impact of minimum wage changes can be inferred from the empirical observation of spillover effects on the wage distribution. |
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