Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/300938 
Year of Publication: 
2024
Series/Report no.: 
IZA Discussion Papers No. 17042
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
This paper investigates how labor-market tightness affects market outcomes if firms use informal, self-enforcing, agreements to motivate workers. We characterize profit-maximizing equilibria and show that an increase in the supply of homogenous workers can increase wages. Moreover, even though all workers are identical in terms of skills or productivity, profit-maximizing discrimination equilibria exist. There, a group of majority workers are paid higher wages than a group of minority workers, who may even be completely excluded. Minimum wages can reduce such discrimination and increase employment. We discuss how these results relate to empirical evidence on downward wage rigidity, immigration, the gender pay gap, and credentialism.
Subjects: 
wage discrimination
immigration
labor supply
informal incentives
minimum wage
JEL: 
D21
D86
J21
J38
J61
J71
Document Type: 
Working Paper

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