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Participation, Recruitment Selection, and the Minimum Wage
Author(s) -
Gavrel Frédéric
Publication year - 2015
Publication title -
the scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/sjoe.12106
Subject(s) - matching (statistics) , economics , labour economics , investment (military) , minimum wage , selection (genetic algorithm) , phenomenon , wage , microeconomics , statistics , mathematics , artificial intelligence , computer science , law , physics , quantum mechanics , politics , political science
In this paper, we re‐examine the efficiency of participation with heterogeneous workers in a search‐matching model with bargained wages and free entry. Assuming that firms hire their best applicants, we show that participation is always too low. The reason for this is a hold‐up phenomenon: to be active, a worker must pay the entire search cost whereas part of the gain from this investment goes to the firm. As a consequence, introducing a (small) minimum wage raises participation, job creation, and employment. Therefore, net aggregate income of the economy is increased.