Minimum Wages as a Redistributive Device in the Long Run

Arbeitspapier

This paper analyzes long run outcomes resulting from adopting a binding minimum wage in a neoclassical model with perfectly competitive labour markets and capital accumulation. The model distinguishes between workers of heterogeneous ability and capitalists who do all the saving, and it entails - relative to the perfectly competitive benchmark - large output and employment losses (among the lowest-ability workers) from the imposition of moderately binding minimum wages. Yet, with linear taxation in place, all employed workers can become better-off provided that the unemployed receive limited welfare support. With progressive taxation in place, the minimum wage may garner political support (i.e. a majority) even when the unemployed receive substantial welfare support despite potential opposition from the capitalists and the unemployed, as well as from the very-high ability workers whose net-of-taxes incomes decline.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 5052

Classification and Topics

• Classification: Wirtschaft ; Macroeconomics: Consumption; Saving; Wealth ; Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity ; Incomes Policy; Price Policy ; Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies ; Labor Demand
• Subject: minimum wage ; capital accumulation ; redistribution ; unemployment

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Economides, George ; Moutos, Thomas
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2014

Further information

• Handle: http://hdl.handle.net/10419/105102
• Last update: 10.03.2025, 11:41 AM CET