TY  - JOUR
AU  - Rebitzer,James B.
AU  - Taylor,Lowell J.
TI  - The Consequences of Minimum Wage Laws: Some New Theoretical Ideas
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3877
PY  - 1991
Y2  - October 1991
UR  - http://www.nber.org/papers/w3877
L1  - http://www.nber.org/papers/w3877.pdf
N1  - Author contact info:
James B. Rebitzer
Professor of Management, Economics, Public Policy
Markets, Public Policy and Law Department
Boston University School of Management
595 Commonwealth Ave.
Boston, MA 02215
Tel: 617-383-7356
Fax: NA
E-Mail: rebitzer@bu.edu

Lowell Taylor
Carnegie Mellon University
H. John Heinz III College
5000 Forbes Avenue
Pittsburgh, PA 15213
Tel: 412/268-3278
E-Mail: lt20@andrew.cmu.edu
AB  - Economists generally agree that the immediate and direct effect of a binding minimum wage law is to move firms backward along the demand curve for low skill workers. However, this prediction of worker displacement depends critically on a model of firm behavior that abstracts from problems of work incentives. In this paper we re-examine the theoretical basis for the consensus view of minimum wage laws. The central finding is that when firms use the threat of dismissal to elicit high levels of work effort, an increase in the minimum wage may have the immediate and direct effect of increasing the level of employment in low wage jobs. The formal logic of our model is similar to that found in the model of labor demand under monopsony. However, unlike the monopsony model, the positive employment effect of the minimum wage emerges in a labor market comprised of a large number of firms competing for the labor services of identical workers.
ER  -