Optimal Taxation and Monopsonistic Labor Market: Does Monopsony Justify the Minimum Wage?

Pierre Cahuc and Guy Laroque

Journal of Public Economic Theory, 2014, vol. 16, issue 2, 259-273

Abstract: Does monopsony on the labor market in itself justify the implementation of a minimum wage when it would not be used in a competitive economy? This issue is studied in a model of optimal taxation. We find that there is no room for the minimum wage when there are a continuum of skills with no isolated mass point at the bottom of the wage distribution. Accordingly, in the empirically relevant situation, where there is a continuum of wages at the bottom of the distribution, the minimum wage is not helpful.

Date: 2014
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Related works:
Working Paper: Optimal Taxation and Monopsonistic Labor Market: Does Monopsony justify the Minimum Wage? (2009)
Working Paper: Optimal Taxation and Monopsonistic Labour Market: Does Monopsony Justify the Minimum Wage? (2007)
Working Paper: Optimal Taxation and Monopsonistic Labor Market: Does Monopsony Justify the Minimum Wage? (2007)
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