Heterogeneous Firms, Labor Union and Minimum Wage Ratio

by Kuo, Shih-Ming

This study constructs a analytical framework in which the Labor Union has full bargaining power and firms are heterogeneous to analyze the economic effect for adjustment of minimum wage ratio. There are two features in this model. First, every firm shows heterogeneity in productivity and survivors of the market are only those with good productivity. Second, the labor union has sufficient power to bargain wage ratio. The main findings of this study include: 1. Increase in the minimum wage ratio raises the survival threshold and labor wage ratio, but decreases the numbers of firms. 2. Increase in the minimum wage ratio does not necessarily result in decrease of labor demand.