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The optimal minimum wage with regulatory uncertainty

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  • John Bennett
  • Ioana Chioveanu

Abstract

For two different regulatory standards, we examine the optimal minimum wage in a competitive labour market when the government is uncertain about supply and demand. Solutions are related to underlying supply and demand conditions, and the extent of uncertainty and of rationing efficiency. We show that regulatory uncertainty does not diminish the rationale for intervention, but may require a low minimum wage that may not bind. With expected earnings-maximization, greater uncertainty widens the range of parameter values for which a minimum wage should be set. With expected worker surplus-maximization and sufficiently efficient rationing, a minimum wage should always be set.
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  • John Bennett & Ioana Chioveanu, 2017. "The optimal minimum wage with regulatory uncertainty," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 19(6), pages 1099-1116, December.
    • Handle: RePEc:bla:jpbect:v:19:y:2017:i:6:p:1099-1116
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    File URL: http://hdl.handle.net/10.1111/jpet.2017.19.issue-6
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    1. N. Bloom, 2016. "Fluctuations in uncertainty," Voprosy Ekonomiki, NP Voprosy Ekonomiki, issue 4.
    2. Lee, David & Saez, Emmanuel, 2012. "Optimal minimum wage policy in competitive labor markets," Journal of Public Economics, Elsevier, vol. 96(9-10), pages 739-749.
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    5. Luttmer Erzo F.P., 2007. "Does the Minimum Wage Cause Inefficient Rationing?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 7(1), pages 1-42, October.
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    Cited by:

    1. Robertas Zubrickas, 2020. "Contingent wage subsidy," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(4), pages 1105-1119, August.

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    More about this item

    JEL classification:

    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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