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The Effect of Minimum Wage Legislation on Income Equality: A TheoreticalAnalysis

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  • J. Huston McCulloch

Abstract

Minimum wage legislation is frequently advocated in the belief that itcreates a more nearly equal distribution of income. A one-sector model of general equilibrium is used to analyze a universally applicable minimum wage, and a two-sector model is used to analyze a minimum wage that is only applied to certain industries. In both cases we find that a minimum wage may well lower equality (as computed by the Gini index) if we consider reasonable values for the parameters of these two models. In the absence of unemployment compensation, equality can increase only if the elasticity of substitution in production is quite low. In the one-sector case, however, equality necessarily rises if unemployment compensation is present and sufficiently generous.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0171.

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Date of creation: Mar 1977
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Handle: RePEc:nbr:nberwo:0171

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  1. Kosters, Marvin & Welch, Finis, 1972. "The Effects of Minimum Wages on the Distribution of Changes in Aggregate Employment," American Economic Review, American Economic Association, vol. 62(3), pages 323-32, June.
  2. Moore, Thomas Gale, 1971. "The Effect of Minimum Wages on Teenage Unemployment Rates," Journal of Political Economy, University of Chicago Press, vol. 79(4), pages 897-902, July-Aug..
  3. Arnold C. Harberger, 1962. "The Incidence of the Corporation Income Tax," Journal of Political Economy, University of Chicago Press, vol. 70, pages 215.
  4. Harry G. Johnson, 1969. "Minimum Wage Laws: A General Equilibrium Analysis," Canadian Journal of Economics, Canadian Economics Association, vol. 2(4), pages 599-604, November.
  5. Ronald W. Jones, 1965. "The Structure of Simple General Equilibrium Models," Journal of Political Economy, University of Chicago Press, vol. 73, pages 557.
  6. Zucker, Albert, 1973. "Minimum Wages and the Long-run Elasticity of Demand for Low-Wage Labor," The Quarterly Journal of Economics, MIT Press, vol. 87(2), pages 267-77, May.
  7. Mincer, Jacob, 1976. "Unemployment Effects of Minimum Wages," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages S87-104, August.
  8. Lee A. Lillard, 1975. "Inequality: Earnings vs. Human Wealth," NBER Working Papers 0080, National Bureau of Economic Research, Inc.
  9. J. Huston McCulloch, 1974. "The Effect of a Minimum Wage Law in the Labour-Intensive Sector," Canadian Journal of Economics, Canadian Economics Association, vol. 7(2), pages 317-19, May.
  10. Johnson, Harry G & Mieszkowski, Peter, 1970. "The Effects of Unionization on the Distribution of Income: A General Equilibrium Approach," The Quarterly Journal of Economics, MIT Press, vol. 84(4), pages 539-61, November.
  11. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
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