The Consequences of Minimum Wage Laws: Some New Theoretical Ideas / James B. Rebitzer, Lowell J. Taylor.

Format:

Book

Author/Creator:

Rebitzer, James B.

Contributor:

National Bureau of Economic Research.

Taylor, Lowell J.

Series:

Working Paper Series (National Bureau of Economic Research) no. w3877.

NBER working paper series no. w3877

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

The Consequences of Minimum Wage Laws

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1991.

Summary:

Economists generally agree that the immediate and direct effect of a binding minimum wage law is to move firms backward along the demand curve for low skill workers. However, this prediction of worker displacement depends critically on a model of firm behavior that abstracts from problems of work incentives. In this paper we re-examine the theoretical basis for the consensus view of minimum wage laws. The central finding is that when firms use the threat of dismissal to elicit high levels of work effort, an increase in the minimum wage may have the immediate and direct effect of increasing the level of employment in low wage jobs. The formal logic of our model is similar to that found in the model of labor demand under monopsony. However, unlike the monopsony model, the positive employment effect of the minimum wage emerges in a labor market comprised of a large number of firms competing for the labor services of identical workers.

Notes:

Print version record

October 1991.