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

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  • Bacache-Beauvallet, Maya

    ()
    (CEPREMAP, Paris)

  • Lehmann, Etienne

    ()
    (CRED, Université Panthéon Assas Paris 2)

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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Bibliographic Info

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:
Publication status: published as 'Minimum wage or negative income tax: why skilled workers may favor wage rigidities' in: Spanish Economic Review, 2008, 10 (1), 63-81
Handle: RePEc:iza:izadps:dp1570

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Keywords: unemployment; political economics; income redistribution; minimum wage;

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References

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  1. Ours, J.C. van & Nickell, S.J., 2000. "The Netherlands and the United Kingdom: A European unemployment miracle?," Open Access publications from Tilburg University urn:nbn:nl:ui:12-84119, Tilburg University.
  2. Persson, Torsten & Tabellini , Guido, 1997. "Political Economics and Macroeconomic Policy," Seminar Papers 630, Stockholm University, Institute for International Economic Studies.
  3. Piketty, Thomas, 1999. "Can fiscal redistribution undo skill-biased technical change?: Evidence from the French experience," European Economic Review, Elsevier, vol. 43(4-6), pages 839-851, April.
  4. Gilles Saint-Paul, 1996. "Labor market institutions and the cohesion of the middle class," International Tax and Public Finance, Springer, vol. 3(3), pages 385-395, July.
  5. 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.
  6. 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.
  7. Epstein, Gil S & Nitzan, Shmuel, 1999. "The Endogenous Determination of Minimum Wage," CEPR Discussion Papers 2319, C.E.P.R. Discussion Papers.
  8. 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 Publishing.
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Cited by:
  1. David Lee & Emmanuel Saez, 2008. "Optimal Minimum Wage Policy in Competitive Labor Markets," Working Papers 1099, Princeton University, Department of Economics, Center for Economic Policy Studies..
  2. David Lee & Emmanuel Saez, 2008. "Optimal Minimum Wage Policy in Competitive Labor Markets," NBER Working Papers 14320, National Bureau of Economic Research, Inc.

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