Participation,Recruitment Selection,and the Minimum Wage |
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Authors: | Frédéric Gavrel |
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Affiliation: | Normandy University, FR‐14032 Caen, FranceAffiliated with CREM, TEPP, and CNRS. |
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Abstract: | In this paper, we re‐examine the efficiency of participation with heterogeneous workers in a search‐matching model with bargained wages and free entry. Assuming that firms hire their best applicants, we show that participation is always too low. The reason for this is a hold‐up phenomenon: to be active, a worker must pay the entire search cost whereas part of the gain from this investment goes to the firm. As a consequence, introducing a (small) minimum wage raises participation, job creation, and employment. Therefore, net aggregate income of the economy is increased. |
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Keywords: | Applicant ranking efficiency heterogeneous workers public policies search and matching D8 J6 |
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