Abstract
The minimum-wage rate has been introduced in many countries as a means of alleviating the poverty of the working poor. This paper shows, however, that an imperfectly enforced minimum-wage rate causes small firms to face an upward-sloping labor supply schedule. Since this turns these firms into endogenous monopsonists, the minimum-wage rate has the perverse effect of reducing employment in small firms as well as what these firms offer their workers. Thus, if there are only small firms, the minimum-wage rate makes all workers that would be employed in the absence of a minimum-wage rate worse off.
| Original language | English |
|---|---|
| Pages (from-to) | 224-229 |
| Number of pages | 6 |
| Journal | Labour Economics |
| Volume | 17 |
| Issue number | 1 |
| DOIs | |
| State | Published - 1 Jan 2010 |
Keywords
- Endogenous monopsony
- Minimum wage
- Noncompliance
- Small firms
ASJC Scopus subject areas
- Economics and Econometrics
- Organizational Behavior and Human Resource Management
