On the Optimality of a Minimum Wage: New Insights from Optimal Tax Theory

Mathias Hungerbühler () and Etienne Lehmann ()
Additional contact information
Mathias Hungerbühler: University of Namur

No 2957, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We build a theoretical model to study whether a minimum wage can be welfare-improving if it is implemented in conjunction with an optimized nonlinear income tax. We consider this issue in a framework where search frictions on the labor market generate unemployment. Workers differ in productivity. The government does not observe workers’ productivity but only their wages. Hence, the redistributive policy solves an adverse selection problem. We show that a minimum wage is optimal if the bargaining power of the workers is relatively low. However, if the government controls the bargaining power, then it is preferable to set a sufficiently high bargaining power.

Keywords: bunching; optimal taxation; minimum wage; search-matching unemployment; wage bargaining (search for similar items in EconPapers)
JEL-codes: D86 H21 H23 J64 J68 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2007-07
New Economics Papers: this item is included in nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Published - published in: Journal of Public Economics, 2009, 93 (3-4), 464-481

Downloads: (external link)
https://docs.iza.org/dp2957.pdf (application/pdf)

Related works:
Journal Article: On the optimality of a minimum wage: New insights from optimal tax theory (2009)
Working Paper: On the Optimality of a Minimum Wage: New Insights from Optimal Tax Theory" (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp2957

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().