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Labor Market Policies in a Sector Specific Search Model with Heterogeneous Firms and Workers

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Abstract:

This paper analyzes the effects of unemployment benefits and minimum wage policies in a noncompetitive labor market with two sectors, two types of workers and sector specific search. It finds that those policies can shift the job composition towards low-wage jobs and that they will never increase the number of higha€‘wage jobs. Welfare can only increase because of reduced social vacancy creation costs. The paper is an extension of Acemoglu (2001) who finds in the homogeneousa€‘worker random search version of the model that the mentioned labor market policies can shift the job composition toward higha€‘wage jobs, increase the number of higha€‘wage jobs and welfare.

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