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A Pareto-Improving Minimum Wage

Author

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  • Danziger, Eliav

    () (Simon Fraser University)

  • Danziger, Leif

    () (Ben Gurion University)

Abstract

This paper shows that a graduated minimum wage, in contrast to a constant minimum wage, can provide a strict Pareto improvement over what can be achieved with an optimal income tax. The reason is that a graduated minimum wage requires high-productivity workers to work more to earn the same income as low-productivity workers, which makes it more difficult for the former to mimic the latter. In effect, a graduated minimum wage allows the low-productivity workers to benefit from second-degree price discrimination which increases their income.

Suggested Citation

  • Danziger, Eliav & Danziger, Leif, 2014. "A Pareto-Improving Minimum Wage," IZA Discussion Papers 8123, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp8123
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    References listed on IDEAS

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    Cited by:

    1. repec:spr:izalbr:v:7:y:2018:i:1:d:10.1186_s40172-018-0066-7 is not listed on IDEAS
    2. Danziger, Eliav & Danziger, Leif, 2018. "The Optimal Graduated Minimum Wage and Social Welfare," IZA Discussion Papers 11386, Institute for the Study of Labor (IZA).
    3. Aart Gerritsen & Bas Jacobs, 2016. "Is a Minimum Wage an Appropriate Instrument for Redistribution?," Tinbergen Institute Discussion Papers 16-100/VI, Tinbergen Institute.
    4. Danziger, Eliav & Danziger, Leif, 2018. "The Optimal Graduated Minimum Wage and Social Welfare," GLO Discussion Paper Series 188, Global Labor Organization (GLO).
    5. Eliav Danziger & Leif Danziger, 2018. "The Optimal Graduated Minimum Wage and Social Welfare," CESifo Working Paper Series 6943, CESifo Group Munich.

    More about this item

    Keywords

    Pareto improvement; graduated minimum wage;

    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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