TY - JOUR
T1 - The 'perverse' effects of wage and price controls in search markets
AU - Fershtman, Chaim
AU - Fishman, Arthur
N1 - 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.
PY - 1994/5
Y1 - 1994/5
N2 - 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.
AB - 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.
UR - http://www.scopus.com/inward/record.url?scp=38149146209&partnerID=8YFLogxK
U2 - 10.1016/0014-2921(94)90039-6
DO - 10.1016/0014-2921(94)90039-6
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AN - SCOPUS:38149146209
SN - 0014-2921
VL - 38
SP - 1099
EP - 1112
JO - European Economic Review
JF - European Economic Review
IS - 5
ER -