The Optimal Graduated Minimum Wage and Social Welfare

Eliav Danziger and Leif Danziger

A chapter in Transitions through the Labor Market, 2018, vol. 46, pp 55-72 from Emerald Group Publishing Limited

Abstract: This chapter 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 chapter 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; D60; H21; J30 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:eme:rleczz:s0147-912120180000046002

DOI: 10.1108/S0147-912120180000046002

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