Does public sector employment buffer the minimum wage effects?

NAVARRO, LUCAS; TEJADA, MAURICIO M.

Review of Economic Dynamics

Elsevier

Año: 2022 vol. 43 p. 168 - 168

1094-2025

his paper studies the impact of a minimum wage policy in a labor market with a private and a public sector. We develop a two-sector search and matching model with minimum wage and heterogeneous workers in their human capital. We structurally estimate the model using data for Chile, a country with a large fraction of employment in the public sector and a binding minimum wage. Counterfactual analysis shows that institutional features of public sector employment reduce labor market frictions and mitigate the negative effect of the minimum wage on unemployment and welfare.