Participation, Recruitment Selection, and the Minimum Wage

Frédéric Gavrel (1)

1 CREM - Centre de recherche en économie et management

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.

Mots clés: efficiency; Search and matching; heterogeneous workers; applicant ranking; public policies

Domaines: Economies et finances

Frédéric Gavrel. Participation, Recruitment Selection, and the Minimum Wage. Scandinavian Journal of Economics, 2015, 117 (4), pp.1281-1305. ⟨10.1111/sjoe.12106⟩. ⟨halshs-01242505⟩