The effect of minimum-wage laws on the distribution of employment: theory and evidence

Recent research casts doubt on the view that minimum-wage laws reduce employment. We show that in a simple model of bilateral search with heterogeneous workers, a minimum-wage law increases employment. However, the increased competition from higher productivity workers makes lower productivity workers worse off without making higher productivity workers better off. We provide evidence that minimum-wage laws shift employment from adults to teenagers and students. This raises concerns about the distributional consequences of minimum wages even when they increase employment. (C) 1998 Elsevier Science S.A.