Minimum Wage or Negative Income Tax: Why Skilled Workers May Favor Wage Rigidities

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Minimum Wage or Negative Income Tax: Why Skilled Workers May Favor Wage Rigidities

Author Info

Maya Bacache-Beauvallet (CEPREMAP, ENS Paris-Jourdan)
Etienne Lehmann () (ERMES, University of Paris 2 and IZA Bonn)

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Abstract

This article studies the political choice over the extent and the means of income redistribution between high and low skilled workers. Redistributive tools encompass fiscal transfers with negative income tax and minimum wage. Using fiscal instruments only is assumed optimal. We show that high skilled workers may favor a second-best minimum wage requirement. This is because minimum wage increases unemployment, hence the marginal cost of redistribution is higher which gives a pretext for high skilled workers to moderate low skilled workers claim for income redistribution.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1570.

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Length: 21 pages
Date of creation: Apr 2005
Date of revision:
Handle: RePEc:iza:izadps:dp1570

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Article
- Maya Bacache-Beauvallet & Etienne Lehmann, 2008. "Minimum wage or negative income tax: why skilled workers may favor wage rigidities," Spanish Economic Review, Springer, vol. 10(1), pages 63-81, March. [Downloadable!] (restricted)

Find related papers by JEL classification:
D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy-Making and Implementation
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

This paper has been announced in the following NEP Reports:

NEP-ALL-2005-04-24 (All new papers)
NEP-LAB-2005-04-24 (Labour Economics)
NEP-MAC-2005-04-24 (Macroeconomics)
NEP-PBE-2005-04-24 (Public Economics)
NEP-POL-2005-04-24 (Positive Political Economics)
NEP-PUB-2005-04-24 (Public Finance)

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Persson, Torsten & Tabellini, Guido, 1997. "Political Economics and Macroeconomic Policy," CEPR Discussion Papers 1759, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Other versions:
- Persson, T. & Tabellini, G., 1997. "Political Economics and Macroeconomic Policy," Papers 630, Stockholm - International Economic Studies.
- Torsten Persson & Guido Tabellini, . "Political Economics and Macroeconomic Policy," Working Papers 121, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
- Persson, Torsten & Tabellini , Guido, 1997. "Political Economics and Macroeconomic Policy," Seminar Papers 630, Stockholm University, Institute for International Economic Studies. [Downloadable!]
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Steve Nickell & Jan van Ours, 2000. "The Netherlands and the United Kingdom: a European unemployment miracle?," Economic Policy, CEPR, CES, MSH, vol. 15(30), pages 135-180, 04. [Downloadable!] (restricted)
Other versions:
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Epstein, Gil S & Nitzan, Shmuel, 1999. "The Endogenous Determination of Minimum Wage," CEPR Discussion Papers 2319, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Other versions:
- Gil S. Epstein & Shmuel Nitzan, 1999. "The Endogenous Determination of Minimum Wage," IZA Discussion Papers 73, Institute for the Study of Labor (IZA). [Downloadable!]
Russell S. Sobel, 1999. "Theory and Evidence on the Political Economy of the Minimum Wage," Journal of Political Economy, University of Chicago Press, vol. 107(4), pages 761-785, August. [Downloadable!] (restricted)
Herwig Immervoll, 2004. "Average and Marginal Effective Tax Rates Facing Workers in the EU: A Micro-Level Analysis of Levels, Distributions and Driving Factors," OECD Social, Employment and Migration Working Papers 19, OECD, Directorate for Employment, Labour and Social Affairs. [Downloadable!]
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Kau, James B & Rubin, Paul H, 1978. "Voting on Minimum Wages: A Time-Series Analysis," Journal of Political Economy, University of Chicago Press, vol. 86(2), pages 337-42, April. [Downloadable!] (restricted)

Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

David S. Lee & Emmanuel Saez, 2008. "Optimal Minimum Wage Policy in Competitive Labor Markets," Working Papers 1105, Princeton University, Department of Economics, Industrial Relations Section.. [Downloadable!]
David Lee & Emmanuel Saez, 2008. "Optimal Minimum Wage Policy in Competitive Labor Markets," NBER Working Papers 14320, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)

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This page was last updated on 2009-11-23.

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