Minimum Wages and Poverty
Textbook analysis tells us that in a competitive labor market, the introduction of a minimum wage above the competitive equilibrium wage will cause unemployment. This paper makes two contributions to the basic theory of the minimum wage. First, we analyze the effects of a higher minimum wage in terms of poverty rather than in terms of unemployment. Second, we extend the standard textbook model to allow for incomesharing between the employed and the unemployed. We find that there are situations in which a higher minimum wage raises poverty, others where it reduces poverty, and yet others in which poverty is unchanged. We characterize precisely how the poverty effect depends on four parameters: the degree of poverty aversion, the elasticity of labor demand, the ratio of the minimum wage to the poverty line, and the extent of incomesharing. Thus, shifting the perspective from unemployment to poverty leads to a considerable enrichment of the theory of the minimum wage.
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- Klasen, Stephan & Woolard, Ingrid, 2000.
"Surviving Unemployment without State Support: Unemployment and Household Formation in South Africa,"
IZA Discussion Papers
237, Institute for the Study of Labor (IZA).
- Stephan Klasen & Ingrid Woolard, 2009. "Surviving Unemployment Without State Support: Unemployment and Household Formation in South Africa," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 18(1), pages 1-51, January.
- Stephan Klasen & Ingrid Woolard, 2001. "Surviving Unemployment without State Support: Unemployment and Household Formation in South Africa," CESifo Working Paper Series 533, CESifo Group Munich.
- Stephen Klasen & Ingrid Woolard, 2005. "Surviving unemployment without state support: Unemployment and household formation in South Africa," SALDRU/CSSR Working Papers 129, Southern Africa Labour and Development Research Unit, University of Cape Town.
- Adams, Scott & Neumark, David, 2005.
"The effects of living wage laws: Evidence from failed and derailed living wage campaigns,"
Journal of Urban Economics,
Elsevier, vol. 58(2), pages 177-202, September.
- Scott Adams & David Neumark, 2005. "The Effects of Living Wage Laws: Evidence from Failed and Derailed Living Wage Campaigns," NBER Working Papers 11342, National Bureau of Economic Research, Inc.
- Adams, Scott & Neumark, David, 2005. "The Effects of Living Wage Laws: Evidence from Failed and Derailed Living Wage Campaigns," IZA Discussion Papers 1566, Institute for the Study of Labor (IZA).
- Scott Adams & David Neumark, 2004. "The Effects of Living Wage Laws: Evidence From Failed and Derailed Living Wage Campaigns," PPIC Working Papers 2004.12, Public Policy Institute of California.
- Freeman, Richard B, 1996. "The Minimum Wage as a Redistributive Tool," Economic Journal, Royal Economic Society, vol. 106(436), pages 639-49, May.
- Nora Lustig & Darryl McLeod, 1996. "Minimum Wages and Poverty in Developing Countries: Some Evidence," Discussion Papers 125, Brookings Institution International Economics.
- David Neumark & William Wascher, 1997.
"Do Minimum Wages Fight Poverty?,"
NBER Working Papers
6127, National Bureau of Economic Research, Inc.
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