Tài liệu Multiple Equilibria and Minimum Wages in Labor Markets with Informational Frictions and Heterogeneous Production Technologies pot

806Multiple Equilibria and Minimum Wages in Labor Markets with Informational Frictions and Heterogeneous Production Technologies Gerard J.. Multiple Equilibria and Minimum Wages in Labor

IZA DP No 806

Multiple Equilibria and Minimum Wages in Labor

Markets with Informational Frictions and

Heterogeneous Production Technologies

Gerard J van den Berg

Forschungsinstitut zur Zukunft der Arbeit

June 2003

Multiple Equilibria and Minimum Wages

in Labor Markets with Informational

Frictions and Heterogeneous

Production Technologies

Gerard J van den Berg

Free University of Amsterdam, Tinbergen Institute, IFAU-Uppsala,

INSEE-CREST, CEPR and IZA Bonn

Discussion Paper No 806

June 2003

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IZA Discussion Paper No 806

It is often argued that a mandatory minimum wage is binding only if the wage density displays

a spike at it In this paper 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

JEL Classification: J3, D83, J42, J6, C72

Keywords: wages, productivity, job search, unemployment, imperfect information,

equilibrium, labor market policy, matching, congestion

Gerard J van den Berg

The eect of a minimum wage on unemployment has been subject of a large

number of empirical studies

2 To provide a theoretical explanation of azero (or

negative) eect, Card and Krueger (1995) hint at monopsony models of the

la-bor market Monopsony power is generated by informational frictions or search

frictions

3

Basically,if rms paywages that arestrictly smallerthanthe

produc-tivity level of the workers then they can still maintain a positive workforce and

earn a pro t, because it takes time for the workers to nd a better paying job

The impositionof a mandatoryminimum wage reduces the degreeto which

em-ployers can exploit their monopsony power In a basic equilibriumsearch model

framework,this shiftsthe wholewage distributionupward, butunemploymentis

not necessarily aected (see Van den Berg and Ridder, 1998) In more general

frameworks, unemployment decreases if the upward shift of the wage

distribu-tion induces unemployed workers to accept jobs more frequently (see Burdett

andMortensen, 1998,andBontemps,RobinandVandenBerg,1999)orincrease

their search intensity In this context, a minimum wage can have the additional

bene cial eect of driving out less productive rms (see Eckstein and Wolpin,

1990)

All of these eects concern comparative-statics results in equilibrium search

models of the labor market (see below for a discussion of the literature) In

thispaperweexamineaminimumwageeect thathas notbeen detected before

Thiseectfollowsfromtheexistenceofmultiplecandidateequilibriaonthelabor

market, inthe contextof informationalfrictions and dispersionof rms'

produc-tion technologies To understand the existence of multiple equilibria intuitively,

note rst of all that a wage oer by a rm must be in between the reservation

wage of the unemployed and the productivity level of the rm Then, basically,

alabormarkethas either(1)high-productivityaswellaslow-productivity rms in which workers are allowed to search on the job, and who

extend this model by introducing heterogeneity In the homogeneous model,

thepossibilityof on-the-jobsearchisa suÆcientconditionfor wage dispersion in

equilibrium Inthatcase,job-to-jobtransitionsareimportantformaintainingthe

workforce ofa rm The resultingmodelssatisfy alargenumberofstylized facts

ofthe labormarket, particularlyconcerningthe relationsbetween jobdurations,

wages, and the sizes of rms (see e.g Ridder and Van den Berg, 1997)

In this paper we adopt the Mortensen (1990) model inwhich workers search

onthe job and and production technologiesare dispersed across rms Bowlus,

4

Absenceofaspikecouldalsobetheresultofmeasurementerrorsinwagedata Butinthat

caseonewouldstillexpectprobabilitymassinasmallintervalaroundtheminimumwageand

manywageobservationsbelowthat Absenceof probabilitymassaround theminimumwage

couldalsobetheresultofwagesbeingbargained tolie halfwa aworkerthresholdvaluejust

belowtheminimumwageanda rmthresholdvaluethatismuchhigher,butinthat casethe

minimumwagehasnoeect (andithasto beassumedthat thereareno rmswith threshold

valuesjust abo etheminimumwage)

types They argue that in general a rather small number of rm types gives a

reasonable t to the main quantiles of the wage distribution For expositional

reasons, we mostly assume that there are two possible productivity levels This

model is suÆciently rich for our purposes, apart from the fact that we have

to make the contact rates dependent on the measure of agents in the market

We show that the results also apply in the case of a continuous productivity

distribution

The abo e literature has not shown multiplicity of equilibrium, or for that

sake the possibility that equilibrium may switch in response to policy changes

Mortensen (1990) derives properties of the equilibrium solutions Bontemps,

Robin and Vanden Berg (2000) analyze a modelwith acontinuousdistribution

of dierent production technologies This model is able to give a perfect t to

wage data, but due to its complexity it is less amenable to a formalanalysis of

conditions formultiplicity of equilibrium

The multiplicity does not depend on the assumption that rms post wages;

italsooccurs inwage bargaining models,like inthe models ofMortensen (1999)

and Acemoglu (2001) In equilibrium search and matching models, multiplicity

typically acoordinationfailure The \eagerness"withwhichparticipants

at one side of the market engage in their rent-seeking behavior depends on the

\eagerness"of theparticipantsatthe other side(and ontheircomposition),and

vice versa In this sense there is a similarity to multiplicity results in Diamond

(1982), Burdett and Coles (1997), Burdett and Wright (1998), Masters (1999),

and Burdett, Lagos and Wright (2002)

The outline of the paper is as follows In Section 2 we present the model

In Section 3 we derive the candidate equilibria, we derive multiplicity in model

extensions,andwedemonstratetheempiricalimportanceofmultiplicity Section

4deals with the eects of changes inthe minimum wage Section 5concludes

Because most of the model framework is discussed in Mortensen (1990) as well

asinsubsequent theoreticaland empiricalstudies, the presentexpositioncan be

brief The model considers a labor market consisting of a continuum of workers

and rms The measure of workers is denoted by m, and the measure of

unem-ployed workers by u InMortensen (1990), the measure of rms isnormalized to

one Here, wemustbemoreexplicitonthis Inagivensteady-state equilibrium,

therecan beactive (pro table) rms aswell asnon-active latent rms that may

be active in another equilibrium We assume that the total measure of ...

andMortensen, 1998,andBontemps,RobinandVandenBerg,1999)orincrease

their search intensity In this context, a minimum wage can have the additional

benecial eect of driving out... literature) In

thispaperweexamineaminimumwageeect thathas notbeen detected before

Thiseectfollowsfromtheexistenceofmultiplecandidateequilibriaonthelabor

market, inthe contextof informationalfrictions...

couldalsobetheresultofwagesbeingbargained tolie halfwa aworkerthresholdvaluejust

belowtheminimumwageandarmthresholdvaluethatismuchhigher,butinthat casethe

minimumwagehasnoeect (andithasto