An Efficiency Enhancing Minimum Wage
AbstractWe consider an economy (e.g., Chile 1973-83 or modern Turkey) with a minimum wage sector and a free sector, and a tax on labor earnings. We ask "Can a slightly binding minimum wage simultaneously raise tax revenue, employment, and economic efficiency?" We answer "Yes, if the elasticity of demand for labor in the minimum-wage sector exceeds the elasticity of demand in the free sector." The logical key is that the minimum wage draws high reservation-wage workers into the labor force, who give up untaxed leisure in exchange for taxed work and thereby increase revenue, employment and efficiency.
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Bibliographic InfoPaper provided by Duke University, Department of Economics in its series Working Papers with number 03-01.
Date of creation: 2003
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Other versions of this item:
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
- J6 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies
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