Wage and employment effects of non-binding minimum wages

Arbeitspapier

Common wisdom holds that the introduction of a non-binding minimum wage is irrelevant for actual wages and employment. Empirical and experimental research, however, has shown that the introduction of a minimum wage can raise even those wages that were already above the new minimum wage. In this paper, we analyze how these findings can be explained by theoretical wage bargaining models between unions and firms. While the Nash bargaining solution is unaffected by minimum wages below initially bargained wages, we show that such minimum wages can drive up wages - and be harmful to employment - when bargaining follows the Kalai-Smorodinsky solution.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 3149

Classification and Topics

• Classification: Wirtschaft ; Wages, Compensation, and Labor Costs: Public Policy ; Bargaining Theory; Matching Theory ; Dispute Resolution: Strikes, Arbitration, and Mediation; Collective Bargaining
• Subject: minimum wage ; bargaining ; Kalai-Smorodinsky solution ; Mindestlohn ; Lohnverhandlungstheorie ; Nash-Gleichgewicht ; Lohnniveau ; Beschäftigungseffekt ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Dittrich, Marcus ; Knabe, Andreas
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/39843
• Last update: 10.03.2025, 11:43 AM CET