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Jose Luis Luna Alpizar, Ph.D.

Gettysburg College, Pennsylvania, USA

Author: Jose Luis Luna-Alpizar

Abstract: This paper explores theoretically and empirically the notion that minimum wages affect workers asymmetrically due to productivity heterogeneity in the labor force. I develop a search model of unemployment with worker het- erogeneity, endogenous search intensity, and moral hazard, that predicts asymmetries in the effects of a minimum wage across the labor force. A rising minimum wage lowers the employment and labor force participation of low-productivity workers by pricing them out of the market, while it increases the employment, participation, and wages of more productive workers that remain hirable. Using CPS micro data, I find empirical  evidence of the model’s predictions, and two main results emerge: 1) the minimum wage affects only the labor market for low-education (high school or lower) workers;  and 2) increments in the minimum  wage have diametrically  opposed effects within this market: they reduce the employment and labor force participation of teenagers with less than high school education, while increasing the employment and labor force participation of mature workers with high school educational attainment. A calibrated version of the model shows that, despite opposite effects within the labor force, an increase in the minimum wage impacts negatively aggregate employment, aggregate labor force participation, and social welfare, in the low-education labor market.

JEL Classification: E24, J08, J24, J38, J64, J68

Keywords: Minimum Wages, Search and Matching, Unemployment, Heterogeneity, Efficiency Wages

Full Text:  “Worker Heterogeneity and the Asymmetric Effects of Minimum Wages”