Minimum wages and poverty with income-sharing
AbstractTextbook analysis tells us that in a competitive labor market, the introduction of a minimum wage above the competitive equilibrium wage will cause unemployment. This paper makes three contributions to the basic theory of the minimum wage. First, we analyze the effects of a higher minimum wage in terms of poverty rather than in terms of unemployment. Second, we extend the standard textbook model to allow for income-sharing between employed and unemployed persons in society. Third, we extend the basic model to deal with income sharing within families. We find that there are situations in which a higher minimum wage raises poverty, others where it reduces poverty, and yet others in which poverty is unchanged. We characterize precisely how the poverty effect depends on four parameters: the degree of poverty aversion, the elasticity of labor demand, the ratio of the minimum wage to the poverty line, and the extent of income-sharing. Thus, shifting the perspective from unemployment to poverty leads to a considerable enrichment of the theory of the minimum wage. Copyright Springer Science+Business Media, Inc. 2007
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Bibliographic InfoArticle provided by Springer in its journal The Journal of Economic Inequality.
Volume (Year): 5 (2007)
Issue (Month): 2 (August)
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Web page: http://springerlink.metapress.com/link.asp?id=111137
minimum wage; poverty; unemployment; D6; I32; J3; J64;
Find related papers by JEL classification:
- D6 - Microeconomics - - Welfare Economics
- I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
- J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
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