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The optimal minimum wage with regulatory uncertainty

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  • John Bennett
  • Ioana Chioveanu

Abstract

For two different regulatory standards, we examine the optimal minimum wage in a competitive labour market when the government is uncertain about supply and demand. Solutions are related to underlying supply and demand conditions, and the extent of uncertainty and of rationing efficiency. We show that regulatory uncertainty does not diminish the rationale for intervention, but may require a low minimum wage that may not bind. With expected earnings-maximization, greater uncertainty widens the range of parameter values for which a minimum wage should be set. With expected worker surplus-maximization and sufficiently efficient rationing, a minimum wage should always be set.
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Suggested Citation

  • John Bennett & Ioana Chioveanu, 2017. "The optimal minimum wage with regulatory uncertainty," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 19(6), pages 1099-1116, December.
  • Handle: RePEc:bla:jpbect:v:19:y:2017:i:6:p:1099-1116
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    File URL: http://hdl.handle.net/10.1111/jpet.2017.19.issue-6
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    References listed on IDEAS

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    1. Lee, David & Saez, Emmanuel, 2012. "Optimal minimum wage policy in competitive labor markets," Journal of Public Economics, Elsevier, vol. 96(9-10), pages 739-749.
    2. Stephen P. Allen, 1987. "Taxes, Redistribution, and the Minimum Wage: A Theoretical Analysis," The Quarterly Journal of Economics, Oxford University Press, vol. 102(3), pages 477-489.
    3. Luttmer Erzo F.P., 2007. "Does the Minimum Wage Cause Inefficient Rationing?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 7(1), pages 1-42, October.
    4. Pedro Portugal & Ana Rute Cardoso, 2006. "Disentangling the Minimum Wage Puzzle: An Analysis of Worker Accessions and Separations," Journal of the European Economic Association, MIT Press, vol. 4(5), pages 988-1013, September.
    5. Jeremy Bulow & Paul Klemperer, 2012. "Regulated Prices, Rent Seeking, and Consumer Surplus," Journal of Political Economy, University of Chicago Press, vol. 120(1), pages 160-186.
    6. 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.
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    Cited by:

    1. Robertas Zubrickas, 2020. "Contingent wage subsidy," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(4), pages 1105-1119, August.

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    More about this item

    JEL classification:

    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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