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|
|Date of revision:|
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- Welch, Finis, 1974. "Minimum Wage Legislation in the United States," Economic Inquiry, Western Economic Association International, vol. 12(3), pages 285-318, September.
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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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"Minimum Wages and Employment: A Case Study of the Fast Food Industry in New Jersey and Pennsylvania,"
NBER Working Papers
4509, National Bureau of Economic Research, Inc.
- 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, American Economic Association, vol. 84(4), pages 772-93, September.
- Brown, Charles & Gilroy, Curtis & Kohen, Andrew, 1982. "The Effect of the Minimum Wage on Employment and Unemployment," Journal of Economic Literature, American Economic Association, vol. 20(2), pages 487-528, June.
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