An urn-ball matching model of the labor market is used to develop a theory
of minimum wage compliance or voluntary recognition of unions. Workers
can direct their search but, in the absence of wage commitment from the
Örms, they have no basis to do so. The default means of wage formation
in one-on-one matches is Nash bargaining. When there are multiple applicants competition drives the workers down to their continuation value. By
attracting more applicants, a binding wage áoor provides a means for Örms
to increase matching rates and improve match quality. An otherwise poorly
enforced minimum wage acts as a commitment device for the payment of
more generous wages