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The Optimal Graduated Minimum Wage and Social Welfare

In: Transitions through the Labor Market

Author

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  • Eliav Danziger
  • Leif Danziger

Abstract

This chapter analyzes the effects of introducing a graduated minimum wage in a model with optimal income taxation in which a government seeks to maximize social welfare. It shows that the optimal graduated minimum wage increases social welfare by increasing the low-productivity workers’ consumption and bringing it closer to the first-best. The chapter also describes how the graduated minimum wage in a social welfare optimum depends on important economy characteristics such as the government’s revenue needs, the social welfare weight of low-productivity workers, and the numbers and productivities of the different types of workers.

Suggested Citation

  • Eliav Danziger & Leif Danziger, 2018. "The Optimal Graduated Minimum Wage and Social Welfare," Research in Labor Economics, in: Transitions through the Labor Market, volume 46, pages 55-72, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:rleczz:s0147-912120180000046002
    DOI: 10.1108/S0147-912120180000046002
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    More about this item

    Keywords

    Graduated minimum wage; optimal income taxation; social welfare; D60; H21; J30;
    All these keywords.

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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