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

Research output: Contribution to JournalArticleAcademic


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.
Original languageEnglish
Pages (from-to)1337-1357
Number of pages21
JournalInternational Economic Review
Publication statusPublished - 2003

Cite this