Optimal minimum wages

Gabriel Ahlfeldt, Duncan Roth and Tobias Seidel

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: We develop a quantitative spatial model with heterogeneous firms and a monopsonistic labour market to derive minimum wages that maximize employment or welfare. Quantifying the model for German micro regions, we find that the German minimum wage, set at 48% of the national mean wage, has increased aggregate worker welfare by about 2.1% at the cost or reducing employment by about 0.3%. The welfare-maximizing federal minimum wage, at 60% of the national mean wage, would increase aggregate worker welfare by 4%, but reduce employment by 5.6%. An employment-maximizing regional wage, set at 50% of the regional mean wage, would achieve a similar aggregate welfare effect and increase employment by 1.1%.

Keywords: general equilibrium; minimum wage; monopsony; employment; Germany; inequality (search for similar items in EconPapers)
Date: 2022-01-20
New Economics Papers: this item is included in nep-eec, nep-eur and nep-ure
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Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Optimal minimum wages (2022)
Working Paper: Optimal minimum wages (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:cep:cepdps:dp1823

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