![]() ![]() Moreover, depending on this parameter, an increase in the statutory overtime premium will make firms substitute incumbent workers’ overtime hours by additional workers (Ehrenberg 1971 Trejo 1993). The resulting increase in unemployment is a function of the own-wage elasticity of labor demand (Lee and Saez 2012). ![]() If a minimum wage is set above the equilibrium wage rate, firms in competitive labor markets will reduce their labor demand, and, hence, unemployment arises (Stigler 1946). In general, the own-wage elasticity of labor demand determines the effectiveness of labor market policies that shape the incentives behind employers’ employment and hours decisions (Hamermesh 1993). The own-wage elasticity of labor demand is a key determinant of the labor market, reflecting the responsiveness of firms’ employment decision to wage changes (i.e., the inverse slope of the labor demand curve).
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