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The Optimal Graduated Minimum Wage and Social Welfare

Author

Listed:
  • Danziger, Eliav

    () (Simon Fraser University)

  • Danziger, Leif

    () (Ben Gurion University)

Abstract

This paper analyzes the effects of introducing a graduated minimum wage in a model with optimal income taxation in which a government seeks to maximize social welfare. It shows that the optimal graduated minimum wage increases social welfare by increasing the low-productivity workers' consumption and bringing it closer to the first-best. The paper also describes how the graduated minimum wage in a social welfare optimum depends on important economy characteristics such as the government's revenue needs, the social-welfare weight of low-productivity workers, and the numbers and productivities of the different types of workers.

Suggested Citation

  • Danziger, Eliav & Danziger, Leif, 2018. "The Optimal Graduated Minimum Wage and Social Welfare," IZA Discussion Papers 11386, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp11386
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    References listed on IDEAS

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    More about this item

    Keywords

    optimal income taxation; graduated minimum wage; social welfare;

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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