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Some deadweight losses from the minimum wage: the cases of full and partial compliance

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  • Palda, Filip

Abstract

This paper highlights the social costs from non-price rationing of the labour force due to the minimum wage. By short-circuiting the ability of low reservation-wage workers to underbid high-reservation wage workers, the minimum wage interferes with the market's basic function of grouping the lowest cost workers with the highest productivity firms. The present paper models the deadweight loss that society bears when high reservation-cost workers displace low reservation-cost workers. When firms can evade part or all of the minimum wage, an extra deadweight loss arises. Firms with high evasive ability but low productivity may displace firms with low evasive ability but high productivity.
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Suggested Citation

  • Palda, Filip, 2000. "Some deadweight losses from the minimum wage: the cases of full and partial compliance," Labour Economics, Elsevier, vol. 7(6), pages 751-783, November.
    • Handle: RePEc:eee:labeco:v:7:y:2000:i:6:p:751-783
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    Cited by:

    1. Aart Gerritsen & Bas Jacobs, 2020. "Is a Minimum Wage an Appropriate Instrument for Redistribution?," Economica, London School of Economics and Political Science, vol. 87(347), pages 611-637, July.
    2. Aart Gerritsen, 2016. "Equity and Efficiency in Rationed Labor Markets," Working Papers tax-mpg-rps-2016-04, Max Planck Institute for Tax Law and Public Finance.
    3. Bulow, Jeremy & Klemperer, Paul, 2009. "Price Controls and Consumer Surplus," CEPR Discussion Papers 7412, C.E.P.R. Discussion Papers.
    4. 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.
    5. 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.
    6. Gerritsen, Aart, 2017. "Equity and efficiency in rationed labor markets," Journal of Public Economics, Elsevier, vol. 153(C), pages 56-68.
    7. Vink, N & Tregurtha, N, 2003. "A Theoretical Perspective On A Minimum Wage In South African Agriculture," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 42(01).
    8. Alexandre Couture Gagnon, 2018. "Filip Palda: In memoriam," Public Choice, Springer, vol. 174(3), pages 213-217, March.

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    More about this item

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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