Household Labor Supply, Unemployment and Minimum Wage Legislation
نویسندگان
چکیده
The supply behavior of labor frequently depends on the demand conditions that prevail on the labor market. If demand is inadequate, households may send additional household members, who otherwise would not have worked, to look for work, for fear that the main income earner may lose his job. This paper is a study of the theoretical consequences of this ’’added worker’’ affect. It is shown that this can give rise to multiple equilibria in the labor market. Surprisingly, a minimum wage law set below the prevailing market wage can now cause the market wage to fall and unemployment to rise. Unemployment benefits, by countering some of the risk of unemployment can neutralize the inefficiencies caused by the tendency of households to oversupply labor. JEL Classification Numbers: D10, J64, K31.
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