An Efficiency Enhancing Minimum Wage

Omer Gokcekus and Edward Tower

No 03-01, Working Papers from Duke University, Department of Economics

Abstract: We consider an economy (e.g., Chile 1973-83 or modern Turkey) with a minimum wage sector and a free sector, and a tax on labor earnings. We ask "Can a slightly binding minimum wage simultaneously raise tax revenue, employment, and economic efficiency?" We answer "Yes, if the elasticity of demand for labor in the minimum-wage sector exceeds the elasticity of demand in the free sector." The logical key is that the minimum wage draws high reservation-wage workers into the labor force, who give up untaxed leisure in exchange for taxed work and thereby increase revenue, employment and efficiency.

JEL-codes: J31 J6 (search for similar items in EconPapers)
Date: 2003
New Economics Papers: this item is included in nep-pub
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Citations: View citations in EconPapers (2)

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Journal Article: An Efficiency Enhancing Minimum Wage (2003)
Working Paper: An Efficiency Enhancing Minimum Wage (1996)
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Persistent link: https://EconPapers.repec.org/RePEc:duk:dukeec:03-01

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