An Efficiency Enhancing Minimum Wage
We consider an economy (e.g., Chile 1973-83 or modern Turkey) with a minimum wage sector and a free sector, and a tax on labor earnings. We ask "Can a slightly binding minimum wage simultaneously raise tax revenue, employment, and economic efficiency?" We answer "Yes, if the elasticity of demand for labor in the minimum-wage sector exceeds the elasticity of demand in the free sector." The logical key is that the minimum wage draws high reservation-wage workers into the labor force, who give up untaxed leisure in exchange for taxed work and thereby increase revenue, employment and efficiency.
|Date of creation:||2003|
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- Card, David & Krueger, Alan B, 1994.
"Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania,"
American Economic Review,
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- David Card & Alan B. Krueger, 1993. "Minimum Wages and Employment: A Case Study of the Fast Food Industry in New Jersey and Pennsylvania," Working Papers 694, Princeton University, Department of Economics, Industrial Relations Section..
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- William Wascher & David Neumark, 2000. "Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania: Comment," American Economic Review, American Economic Association, vol. 90(5), pages 1362-1396, December.
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