A Pareto-improving Minimum Wage

Eliav Danziger and Leif Danziger ()

Economica, 2015, vol. 82, issue 326, 236-252

Abstract: type="main" xml:id="ecca12119-abs-0001">

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.

Date: 2015
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Working Paper: A Pareto-Improving Minimum Wage (2014)
Working Paper: A Pareto-Improving Minimum Wage (2014)
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