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The Optimal Graduated Minimum Wage and Social Welfare

Eliav Danziger and Leif Danziger

No 6943, CESifo Working Paper Series from CESifo Group Munich

Abstract: This paper 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 paper 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 (search for similar items in EconPapers)
JEL-codes: D60 H21 J30 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pbe
Date: 2018
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