The Optimal Graduated Minimum Wage and Social Welfare

Eliav Danziger and Leif Danziger

No 188, GLO Discussion Paper Series from Global Labor Organization (GLO)

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.

Keywords: Graduated minimum wage; optimal income taxation; social welfare (search for similar items in EconPapers)
JEL-codes: D60 H21 J30 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-pbe
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:glodps:188

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