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Tuesday, August 22, 2006

Adjustable Effort and the Minimum Wage

David Altig answers a question from PGL at Angry Bear:

What did you think of Dr. Thoma's efficiency wage defense for the minimum wage?

David has a very nice follow-up and he explains how a model with variable effort might operate. He says, though:

Be, however, forewarned -- the econgeek rating on this one is pretty high.

He presents it in a way that is easy to understand, complete with graphs to illustrate his points, so that shouldn't be a problem. Interestingly, in such a model:

[V]ariable labor effort seems to undo a good measure of the (bad) effects that might otherwise follow from imposing a wage that is "too high". Might this explain why the data do not speak so clearly on the overall employment effects of the minimum wage?  Maybe.

But he remains skeptical.

    Posted by on Tuesday, August 22, 2006 at 12:33 AM in Economics, Policy, Politics, Unemployment | Permalink  TrackBack (0)  Comments (6)


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