A Minimum Wage Can Be Welfare-Improving and Employment-Enhancing

Robin Boadway and Katherine Cuff

No 72, Cahiers de recherche CREFE / CREFE Working Papers from CREFE, Université du Québec à Montréal

Abstract: We examine whether minimum wages can fulfill a useful role as part of an optimal non-linear income tax scheme. In this setting, governments cannot observe household abilities, only their incomes. Redistributing according to income, the government is constrained by a set of incentive constraints. Firms, on the other hand, are able to identify abilities of workers. To exploit that, the government imposes a minimum wage. This will preclude firms from offering a job to anyone below the minimum wage. The use of the minimum wage policy combined with the institutional features of typical welfare systems allows the incentive constraints to be severed at the ability level associated with the minimum wage. If such a scheme can be enforced, the government can increase the amount of redistribution from those working to those not working. Moreover, the optimal minimum wage may actually lower the number of unemployed.

Nous étudions la possibilité qu'un salaire minimum soit une composante utile d'un système de taxation non-linéaire optimale du revenu. Dans un tel cadre, les gouvernements observent le revenu des individus, mais pas leur habileté. La redistribution ne pouvant dépendre que du revenu, le gouvernement est contraint par un ensemble de contraintes d'incitation. Les firmes peuvent par ailleurs observer les habiletés des travailleurs. Afin d'exploiter ce dernier fait, le gouvernement impose un salaire minimum. La mise en place d'un salaire minimum, étant donné les caractéristiques institutionnelles des systèmes d'aide sociale habituels, permet de relâcher la contrainte d'incitation des individus ayant une habilité égale au salaire minimum. Si un tel système peut être mis en vigueur, le gouvernement peut accroître l'ampleur de la redistribution de ceux qui travaillent vers ceux qui ne travaillent pas. De plus, il est possible que le salaire minimum optimal diminue le nombre de chômeurs.

Keywords: minimum wage; optimal income tax; unemployment (search for similar items in EconPapers)
JEL-codes: H21 H23 J38 (search for similar items in EconPapers)
Pages: 41 pages
Date: 1999-03
New Economics Papers: this item is included in nep-ltv, nep-pbe, nep-pol and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.unites.uqam.ca/eco/CREFE/cahiers/cah72.ps Main text (application/postscript)
Our link check indicates that this URL is bad, the error code is: 403 Forbidden (http://www.unites.uqam.ca/eco/CREFE/cahiers/cah72.ps [301 Moved Permanently]--> https://unites.uqam.ca/eco/CREFE/cahiers/cah72.ps)
http://www.unites.uqam.ca/eco/CREFE/cahiers/cah72.pdf Main text (application/pdf)
Our link check indicates that this URL is bad, the error code is: 403 Forbidden (http://www.unites.uqam.ca/eco/CREFE/cahiers/cah72.pdf [301 Moved Permanently]--> https://unites.uqam.ca/eco/CREFE/cahiers/cah72.pdf)

Related works:
Journal Article: A minimum wage can be welfare-improving and employment-enhancing (2001)
Working Paper: A Minimum Wage Can Be Welfare-improving And Employment-enhancing (1999)
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:cre:crefwp:72

Access Statistics for this paper

More papers in Cahiers de recherche CREFE / CREFE Working Papers from CREFE, Université du Québec à Montréal P.O. Box 8888, Downtown Station, Montreal (Canada) Quebec, H3C 3P8. Contact information at EDIRC.
Bibliographic data for series maintained by Stéphane Pallage ().