Minimum Wages as a Redistributive Device in the Long Run

George Economides and Thomas Moutos

No 5052, CESifo Working Paper Series from CESifo

Abstract: This paper analyzes long run outcomes resulting from adopting a binding minimum wage in a neoclassical model with perfectly competitive labour markets and capital accumulation. The model distinguishes between workers of heterogeneous ability and capitalists who do all the saving, and it entails – relative to the perfectly competitive benchmark - large output and employment losses (among the lowest-ability workers) from the imposition of moderately binding minimum wages. Yet, with linear taxation in place, all employed workers can become better-off provided that the unemployed receive limited welfare support. With progressive taxation in place, the minimum wage may garner political support (i.e. a majority) even when the unemployed receive substantial welfare support despite potential opposition from the capitalists and the unemployed, as well as from the very-high ability workers whose net-of-taxes incomes decline.

Keywords: minimum wage; capital accumulation; redistribution; unemployment (search for similar items in EconPapers)
JEL-codes: E21 E24 E64 H23 J23 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_5052

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