A new GLO Discussion Paper using a Roy-Rosen model to simulate the effects of the minimum wage for the Brazilian economy. The policy might be desirable if employment losses are concentrated in jobs characterized by low surplus.
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GLO Discussion Paper No. 577, 2020
Labor Market Policies in a Roy-Rosen Bargaining Economy – Download PDF
by Jales, Hugo & Yu, Zhengfei
GLO Fellow Hugo Jales
Author Abstract: We study the effects of labor market policies using a bargaining model featuring compensating differentials (Rosen, 1986) and self-selection (Roy, 1951). The framework allows us to create a taxonomy of formal and informal employment. We use the model to estimate the effects of the minimum wage for the Brazilian economy using the “PNAD” dataset for the years 2001-2005. Our results suggest that, although the minimum wage generates unemployment and reallocation of labor to the informal sector, the policy might be desirable if the employment losses are concentrated in jobs characterized by low surplus.
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