Minimum Wage in a Multi-Tier Search and Wage-Posting Model with Cross-Market Substitutions

While minimum wage policy is widely adopted in the real world, can it effectively raise average of lower paid jobs without having large detrimental consequences for employment? The empirical literature fails to establish robust findings. We develop a general-equilibrium search and wage-posting framework with heterogeneous workers tasks matching multi-tier labor markets: abstract, routine high-skilled, middle-skilled, manual middle-skilled low-skilled. incorporate rich cross-market spillovers compositional effects from individual responses market thickness. As result hikes, we show that (i) unemployment rate at binding higher, while all other markets enjoy rate; (ii) employment low-skilled lower, whereas high-skilled higher due substitutions; and, (iii) has ambiguous conflicting on potential worker entry unemployment. By calibrating model fit U.S. data, evaluate impacts federal hike (2007-2009) on-going increase Seattle (2017-2021). find depend crucially magnitudes spillover may be weak nonbinding market. Moreover, our results suggest that, both hikes reduce aggregate output, they only generate small submarket overall wages. Institutional subscribers NBER working paper series, residents developing countries download this additional charge www.nber.org.