Optimal Minimum Wage
AbstractThis paper studies the optimality of a minimum wage law when it is used, jointly with a distortionary tax-transfer scheme, to redistribute income among agents with different marginal productivity. We build a dynamic and stochastic general equilibrium model with a Ramsey planner making decisions on distortionary taxes, transfers, debt and minimum wage levels. In the economy there are two types of households; a low skilled and a high skilled type. We find that the optimality of minimum wages depends on the elasticity of substitution between labor inputs in the production technology and the size of each group in the total population. The sign and size of the elasticity of labor supply play also a crucial role in the setting of optimal policies. Finally, when it is assumed that tax revenues finance not only transfers, but also public spending, the probability of an optimal minimum wage law increase
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 302.
Date of creation: 2004
Date of revision:
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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Web page: http://www.EconomicDynamics.org/society.htm
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Ramsey Problem; Minimun Wage; Redistribution;
Find related papers by JEL classification:
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
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- Arantza Gorostiaga & Rubio-Ramírez Juan F., 2008.
"Fiscal policy and minimum wage for redistribution: an equivalence result,"
AccessEcon, vol. 5(11), pages 1-8.
- Arantza Gorostiaga & Juan Francisco Rubio-Ramírez, 2005. "Fiscal policy and minimum wage for redistribution: an equivalence result," Working Paper 2005-08, Federal Reserve Bank of Atlanta.
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