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Employment Effects of Minimum Wages in Inflexible Labor Markets

Ozturk, Orgul (2006): Employment Effects of Minimum Wages in Inflexible Labor Markets.

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Abstract

This paper structurally models and estimates the employment effects of a minimum wage regulation in an inflexible labor market with fixed employment costs. When there are fixed costs associated with employment, minimum-wage regulation not only results in a reduction in employment among low-productivity workers but also shifts the distribution of hours for the available jobs in the market, resulting in a scarcity of part-time jobs. Thus, for sufficiently high employment costs, a minimum wage makes it less likely for "marginal" workers to enter and stay in the labor market. I estimate the model using survey data from Turkey. I find a significant reduction in employment due to the loss of part-time jobs caused by the national minimum-wage policy in this highly inflexible labor market.

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