Is a Minimum Wage an Appropriate Instrument for Redistribution?

Arbeitspapier

We analyze the redistributive (dis)advantages of a minimum wage over income taxation in competitive labor markets. A minimum wage causes more unemployment, but also leads to more skill formation as unemployment is concentrated on low-skilled workers. A simple condition based on three sufficient statistics shows that a minimum wage is desirable if the social welfare gains of more skill formation outweigh the social welfare losses of increased unemployment. Using a highly conservative calibration, a minimum wage decrease is shown to be part of a Pareto-improving policy reform for all countries under consideration, except possibly the United States.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 4588

Classification and Topics

• Classification: Wirtschaft ; Welfare Economics: General ; Taxation and Subsidies: Efficiency; Optimal Taxation ; Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes ; Labor Force and Employment, Size, and Structure ; Human Capital; Skills; Occupational Choice; Labor Productivity ; Wages, Compensation, and Labor Costs: Public Policy
• Subject: minimum wage ; optimal redistribution ; unemployment ; education

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Gerritsen, Aart ; Jacobs, Bas
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2014

Further information

• Handle: http://hdl.handle.net/10419/93398
• Last update: 10.03.2025, 11:44 AM CET