Optimal minimum wages

Gabriel M. Ahlfeldt, Duncan Roth and Tobias Seidel

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We develop a quantitative spatial model with heterogeneous firms and a monopsonistic labour market to derive minimum wages that maximize employment or welfare. Quantifying the model for German micro regions, we find that the German minimum wage, set at 48% of the national mean wage, has increased aggregate worker welfare by about 2.1% at the cost or reducing employment by about 0.3%. The welfare-maximizing federal minimum wage, at 60% of the national mean wage, would increase aggregate worker welfare by 4%, but reduce employment by 5.6%. An employment-maximizing regional wage, set at 50% of the regional mean wage, would achieve a similar aggregate welfare effect and increase employment by 1.1%.

Keywords: general equilibrium; minimum wage; monopsony; employment; Germany; inequality (search for similar items in EconPapers)
JEL-codes: J31 J58 R12 (search for similar items in EconPapers)
Pages: 95 pages
Date: 2022-01-20
New Economics Papers: this item is included in nep-geo and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://eprints.lse.ac.uk/117750/ Open access version. (application/pdf)

Related works:
Working Paper: Optimal minimum wages (2022)
Working Paper: Optimal minimum wages (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:117750

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