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Faculty of Economics

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Laws, A.

Do minimum wages increase search effort?

CWPE1857

Abstract: Minimum wages often generate a perplexing set of empirical impacts, including little to no employment consequences but large wage consequences. This paper tests arguably the most promising explanation - search models of minimum wages - in a more direct manner than has been possible to date. The analysis combines extensive data on UK workers' search behaviour with quasi-experimental analysis of the UK minimum wage policy structure, including the 2016 introduction of the National Living Wage. I find robust evidence of increased labour force participation and extensive margin search in response to higher minimum wages with no corresponding change in employment rates. Evidence of decreased average search intensity is uncovered and the duration of unemployed search increases. Taken together, the unemployed search results suggest that minimum wages do impact on labour flow frictions in important ways. In contrast, no significant estimates are found for any on-the-job search moments, i.e. I find no evidence for potential concerns that higher minimum wages provide a disincentive for workers to progress up job ladders.

Keywords: Equilibrium search models, Minimum wages, Quasi-experimental analysis

JEL Codes: E24 J21 J64

Author links: Athene Laws  

PDF: http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe1857.pdf

Open Access Link: https://doi.org/10.17863/CAM.33789