Worker heterogeneity and the asymmetric effects of minimum wages

0505070 - NHÚ 2020 RIV CZ eng V - Research Report
Luna Alpizar, Jose Luis
Worker heterogeneity and the asymmetric effects of minimum wages.
Prague: CERGE-EI, 2019. 52 s. CERGE-EI Working Paper Series, 642. ISSN 1211-3298
Institutional support: RVO:67985998
Keywords : minimum wages * search and matching * unemployment
OECD category: Applied Economics, Econometrics
https://www.cerge-ei.cz/pdf/wp/Wp642.pdf

This paper explores the notion that minimum wages affect different lowskilled workers aszmmetrically due to productivity differences. In a search model with worker heterogeneity, a rising minimum wage lowers the employment and labor force participation of the least productive workers by pricing them out of the market, while having the opposite effect on other low-skilled workers that remain hirable. CPS data supports these predictions, a rise in the minimum reduces the employment and labor force participation of teenagers with less than high school education, but has the opposite effect on prime-age workers with high school attainment. The calibrated model requires small firm surpluses to match these observations. If firm surplus is small due to high nonmarket activity values, a moderate rise in the minimum improves aggregate welfare even when the worker's bergaining weight is high.
Permanent Link: http://hdl.handle.net/11104/0296588