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

Guy Laroque and Pierre Cahuc

No 6416, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We analyze optimal taxation in an economy with monopsonistic labour markets. The individuals, whose only decisions are whether to work, or not, have heterogeneous productivities and opportunity costs of work. Given its preferences for redistribution, the government, which does not observe the opportunity costs of work, chooses a tax scheme implementing the second best allocation. We compare the optima in the competitive and monopsonistic environments. We find that the government can always implement the second best allocation of the competitive economy in the monopsonistic environment. The optimal tax schedule comprises employment subsidies financed by taxes on profits. In this setup, there is no room for a minimum wage.

Keywords: Minimum wage; Monopsony; Optimal taxation (search for similar items in EconPapers)
JEL-codes: H31 J30 J42 (search for similar items in EconPapers)
Date: 2007-08
New Economics Papers: this item is included in nep-lab and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
https://cepr.org/publications/DP6416 (application/pdf)

Related works:
Journal Article: Optimal Taxation and Monopsonistic Labor Market: Does Monopsony Justify the Minimum Wage? (2014)
Working Paper: Optimal Taxation and Monopsonistic Labor Market: Does Monopsony justify the Minimum Wage? (2009)
Working Paper: Optimal Taxation and Monopsonistic Labor Market: Does Monopsony Justify the Minimum Wage? (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:6416

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP6416

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().