Working Paper: CEPR ID: DP2319
Authors: Gil S. Epstein; Shmuel Nitzan
Abstract: In this paper we study the endogenous determination of minimum wage employing a political-economic game-theoretic approach. A major objective of the paper is to clarify the crucial role of the strength of the workers' union and of political culture on the determination of the minimum wage. In general, the equilibrium minimum wage differs from that postulated in the literature. In our uncertain environment the optimal minimum wage from the workers' union point of view is lower than the level that maximizes its objective function in a certain environment where there is no opposition to the proposed minimum wage. We establish that a political culture that assigns a positive weight to the public wellbeing can give rise to a wage that equals or exceeds these levels.
Keywords: minimum wage; endogenous determination; political culture; public policy
JEL Codes: J30; J38; J50
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| political culture (D72) | minimum wage (J38) |
| strength of workers' unions (J51) | minimum wage (J38) |
| bureaucrat's proposal (D73) | minimum wage (J38) |
| political constraints (D72) | bureaucrat's proposal (D73) |
| uncertainty (D89) | optimal minimum wage (workers' union perspective) (J38) |
| political culture (positive weighting of public well-being) (P26) | minimum wage (J38) |