Participation, Recruitment Selection, and the Minimum Wage

Abstract

This paper reexamines the efficiency of participation with heterogeneous workers in a search-matching model with bargained wages and free entry. Assuming that firms hire their best applicants, we state that participation is insufficient whatever workers' bargaining strengths. The reason for this is that, when holding a job, the marginal participant should receive the entire output. As a consequence, introducing a (small) minimum wage raises participation, job creation, and employment. Therefore the aggregate income of the economy is enhanced.