IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Optimal Taxation and Monopsonistic Labor Market: Does Monopsony Justify the Minimum Wage?

  • Cahuc, Pierre

    ()

    (Ecole Polytechnique, Paris)

  • Laroque, Guy

    ()

    (Sciences Po, Paris)

We analyze optimal taxation in an economy with monopsonistic labor markets. The individuals, whose only decisions are whether to work, or not, have heterogeneous productivities and opportunity costs of work. Given its preferences for redistribution, the government, which does not observe the opportunity costs of work, chooses a tax scheme implementing the second best allocation. We compare the optima in the competitive and monopsonistic environments. We find that the government can always implement the second best allocation of the competitive economy in the monopsonistic environment. The optimal tax schedule comprises employment subsidies financed by taxes on profits. In this setup, there is no room for a minimum wage.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://ftp.iza.org/dp2955.pdf
Download Restriction: no

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2955.

as
in new window

Length: 26 pages
Date of creation: Jul 2007
Date of revision:
Handle: RePEc:iza:izadps:dp2955
Contact details of provider: Postal: IZA, P.O. Box 7240, D-53072 Bonn, Germany
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org

Order Information: Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany
Email:


References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Mathis Hungerbühler & Etienne Lehmann, 2007. "On the Optimality of a Minimum Wage : New Insights from Optimal Tax Theory”," Working Papers 2007-17, Centre de Recherche en Economie et Statistique.
  2. Bhaskar, V & To, Ted, 1999. "Minimum Wages for Ronald McDonald Monopsonies: A Theory of Monopsonistic Competition," Economic Journal, Royal Economic Society, vol. 109(455), pages 190-203, April.
  3. Herwig Immervoll, 2007. "Minimum Wages, Minimum Labour Costs and the Tax Treatment of Low-Wage Employment," OECD Social, Employment and Migration Working Papers 46, OECD Publishing.
  4. Dolado, Juan J. & Felgueroso, Florentino & Jimeno, Juan F, 2000. "The Role Of The Minimum Wage In The Welfare State: An Appraisal," CEPR Discussion Papers 2452, C.E.P.R. Discussion Papers.
  5. Guy Laroque, 2005. "Income Maintenance and Labor Force Participation," Econometrica, Econometric Society, vol. 73(2), pages 341-376, 03.
  6. Paul Beaudry & Charles Blackorby & Dezs� Szalay, 2009. "Taxes and Employment Subsidies in Optimal Redistribution Programs," American Economic Review, American Economic Association, vol. 99(1), pages 216-42, March.
  7. Alan Manning, 2010. "Imperfect competition in the labour market," LSE Research Online Documents on Economics 28729, London School of Economics and Political Science, LSE Library.
  8. James B. Rebitzer & Lowell J. Taylor, 1991. "The Consequences of Minimum Wage Laws: Some New Theoretical Ideas," NBER Working Papers 3877, National Bureau of Economic Research, Inc.
  9. David Neumark & William Wascher, 2006. "Minimum Wages and Employment: A Review of Evidence from the New Minimum Wage Research," Working Papers 060708, University of California-Irvine, Department of Economics, revised Jan 2007.
  10. Robin Boadway & Katherine Cuff, 1999. "A Minimum Wage can be Welfare-Improving and Employment-Enhancing," Working Papers 980, Queen's University, Department of Economics.
  11. Guesnerie, Roger & Roberts, Kevin, 1987. "Minimum wage legislation as a second best policy," European Economic Review, Elsevier, vol. 31(1-2), pages 490-498.
  12. Alan Manning, 1994. "How do we Know that Real Wages are Too High?," CEP Discussion Papers dp0195, Centre for Economic Performance, LSE.
  13. Diamond, P., 1980. "Income taxation with fixed hours of work," Journal of Public Economics, Elsevier, vol. 13(1), pages 101-110, February.
  14. Adrian M. Masters, . "Wage Posting in Two-sided Search and the Minimum Wage," Economics Discussion Papers 457, University of Essex, Department of Economics.
  15. Emmanuel Saez, 2002. "Optimal Income Transfer Programs: Intensive Versus Extensive Labor Supply Responses," The Quarterly Journal of Economics, MIT Press, vol. 117(3), pages 1039-1073, August.
  16. Beaudry, Paul & Blackorby, 1997. "Taxes and employment subsidies in an optimal redistribution program," CEPREMAP Working Papers (Couverture Orange) 9709, CEPREMAP.
  17. Philippe Chone & Guy Laroque, 2001. "Optimal Incentives for Labor Force Participation," Working Papers 2001-26, Centre de Recherche en Economie et Statistique.
  18. Cahuc, P. & Saint-Martin, A. & Zylberberg, A., 2001. "The consequences of the minimum wage when other wages are bargained over," European Economic Review, Elsevier, vol. 45(2), pages 337-352, February.
  19. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  20. Philippe Choné & Guy Laroque, 2006. "Should Low Skilled Work be Subsidized ?," Working Papers 2006-08, Centre de Recherche en Economie et Statistique.
  21. Flinn, Christopher, 2003. "Minimum Wage Effects on Labor Market Outcomes under Search with Bargaining," IZA Discussion Papers 949, Institute for the Study of Labor (IZA).
  22. Allen, Stephen P, 1987. "Taxes, Redistribution, and the Minimum Wage: A Theoretical Analysis," The Quarterly Journal of Economics, MIT Press, vol. 102(3), pages 477-89, August.
  23. Drazen, Allan, 1986. "Optimal Minimum Wage Legislation," Economic Journal, Royal Economic Society, vol. 96(383), pages 774-84, September.
Full references (including those not matched with items on IDEAS)

This item is featured on the following reading lists or Wikipedia pages:

  1. Economic Logic blog

When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp2955. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.