Does public sector employment buffer the minimum wage effects?

This paper studies the impact of a minimum wage policy in a labor market with a private and a public sector. We develop a two-sector search and matching model with minimum wage and heterogeneous workers in their human capital. We structurally estimate the model using data for Chile, a country with a...

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Bibliographic Details
Published inReview of economic dynamics Vol. 43; pp. 168 - 196
Main Authors Navarro, Lucas, Tejada, Mauricio M.
Format Journal Article
LanguageEnglish
Published Elsevier Inc 01.01.2022
Subjects
Minimum wage
Public sector employment
Search frictions
Public sector employment
J64
J45
Minimum wage
Search frictions
C51
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Summary:This paper studies the impact of a minimum wage policy in a labor market with a private and a public sector. We develop a two-sector search and matching model with minimum wage and heterogeneous workers in their human capital. We structurally estimate the model using data for Chile, a country with a large fraction of employment in the public sector and a binding minimum wage. Counterfactual analysis shows that institutional features of public sector employment reduce labor market frictions and mitigate the negative effect of the minimum wage on unemployment and welfare.
ISSN:1094-2025
1096-6099
DOI:10.1016/j.red.2021.02.004