Abstract
This paper examines the effects of price ceilings and minimum wages on the performance of markets in which agents must invest in costly search to become informed about prices or wages. In this context it is found that the market equilibrium may respond to changes in policy instruments in strikingly counterintuitive ways. In particular, the imposition of price ceilings and minimum wages may respectively result in consumer price increases and wage decreases. Thus an important implication of our analysis is that when unions fight to increase wages by raising the minimum wage, they may, paradoxically, actually be reducing the average wage of its members.
| Original language | English |
|---|---|
| Pages (from-to) | 1099-1112 |
| Number of pages | 14 |
| Journal | European Economic Review |
| Volume | 38 |
| Issue number | 5 |
| DOIs | |
| State | Published - May 1994 |
| Externally published | Yes |
Bibliographical note
Funding Information:Correspondence to: Arthur Fishman, Department of Economics, Tel-Aviv University, Tel-Aviv, 69978 Israel. *We are grateful to an editor and to two anonymous referees for valuable comments and suggestions. Financial assistance from the Foerder Institute for Economic Research is gratefully acknowledged. ‘This is the view of Milton Friedman, for example, as quoted in an interview in Dialogue, No. 90, 4190, pp. 21-22.
Funding
Correspondence to: Arthur Fishman, Department of Economics, Tel-Aviv University, Tel-Aviv, 69978 Israel. *We are grateful to an editor and to two anonymous referees for valuable comments and suggestions. Financial assistance from the Foerder Institute for Economic Research is gratefully acknowledged. ‘This is the view of Milton Friedman, for example, as quoted in an interview in Dialogue, No. 90, 4190, pp. 21-22.
| Funders | Funder number |
|---|---|
| Foerder Institute for Economic Research |
