This paper examines the welfare implications of minimum wage legislation in a simple two-sector model, in which greater effort is required to produce in the higher productivity sector and individual ability is private. An adverse selection distortion arises so that, without a minimum wage, too...

Privately observed ability increases output, and reduces effort required to complete tasks, in a model where harder tasks produce more output. The relation between average quality of the workforce and the wage rate is ambiguous. The model also produces a rat-race, in the sense that some...

The paper considers "efficient bargains", with a union that weighs the utilities of its members unequally and negotiates over group employment levels. Such discrimination may lead to socially inefficient overemployment of the dominant group, and underemployment of the group suffering...