Author: P. Nick Blanchard

Publisher: Prentice Hall

Published: 2004

Total Pages: 0

ISBN-13: 9780130327390

In The Minimum Wage and Labor Market Outcomes, Christopher Flinn argues that inassessing the effects of the minimum wage (in the United States and elsewhere), a behavioralframework is invaluable for guiding empirical work and the interpretation of results. Flinn developsa job search and wage bargaining model that is capable of generating labor market outcomesconsistent with observed wage and unemployment duration distributions, and also can account forobserved changes in employment rates and wages after a minimum wage change. Flinn uses previousstudies from the minimum wage literature to demonstrate how his model can be used to rationalize andsynthesize the diverse results found in widely varying institutional contexts. He also shows howobserved wage distributions from before and after a minimum wage change can be used to determine ifthe change was welfare-improving. More ambitiously, and perhaps controversially, Flinn proposes theconstruction and formal estimation of the model using commonly available data; model estimates thenenable the researcher to determine directly the welfare effects of observed minimum wage changes.This model can be used to conduct counterfactual policy experiments--even to determine"optimal" minimum wages under a variety of welfare metrics. The development of the modeland the econometric theory underlying its estimation are carefully presented so as to enable readersunfamiliar with the econometrics of point process models and dynamic optimization in continuous timeto follow the arguments. Although most of the book focuses on the case where only the unemployedsearch for jobs in a homogeneous labor market environment, later chapters introduce on-the-jobsearch into the model, and explore its implications for minimum wage policy. The book also containsa chapter describing how individual heterogeneity can be introduced into the search, matching, andbargaining framework.