Working Paper Series, Department of Economics, Uppsala University
No 2010:10:
Rational Expectations and the Puzzling No-Effect of the Minimum Wage
Sara Pinoli ()
Abstract: This paper argues that expectations are an important
element that need to be included into the analysis of the effects of the
minimum wage on employment. We show in a standard matching model that the
observed employment e¤ect is higher the lower is the likelihood associated
with the minimum wage variation. On the other side, there is a significant
anticipation e¤ect, ignored in the literature. This property is able to
explain the controversial results found in the empirical studies. When the
policy is anticipated, the effect at the time of the actual variation is
small and potentially hard to identify. The model is tested on Spanish
data, taking advantage of the unexpected change in the minimum wage
following the election of Zapatero in 2004.
Keywords: Minimum wage; Expectations; Heterogeneous matches; (follow links to similar papers)
JEL-Codes: D21; J23; J38; (follow links to similar papers)
56 pages, June 17, 2010
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