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

Lucas Navarro

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 high‑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 homogeneous‑worker random search version of the model that the mentioned labor market policies can shift the job composition toward high‑wage jobs, increase the number of high‑wage jobs and welfare.

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