Positive And Normative Effects Of A Minimum Wage

The authors have analyzed the effects of a minimum wage in different versions of a search model of the labor market. They showed that a minimum wage can increase social welfare, labor force participation and search effort of workers. They also argue that if firms have other instruments than the wage to maximize profits, they can mitigate the negative effects of the minimum wage. The effects of a minimum wage could change depend on the structure of the labor market. In particular, the bargaining power of workers is a crucial determinant.