We introduce a minimum wage and severance payments in an equilibrium labor market model with search
frictions. We analyze how these policies affect endogenous job creation and destruction decisions and, more
generally, the general equilibrium allocation. We implement a device to structurally estimate the model’s
parameters, and use it with data from Chile. We then perform a quantitative welfare analysis, and find three
cases: severance payments increase welfare more effectively than minimum wage, these two policies are perfect
substitutes, or they complement each other. The level of wage dispersion found in the sample is critical in
determining which case prevails.