Minimum Wages And Poverty

Ravi Kanbur and Gary Fields ()

Working Papers from eSocialSciences

Abstract: Textbook analysis tells us that in a competitive labor market, the introduction of a minimum wage above the competitive equilibrium wage will cause unemployment. This paper makes two contributions to the basic theory of the minimum wage. First, we analyze the effects of a higher minimum wage in terms of poverty rather than in terms of unemployment. Second, we extend the standard textbook model to allow for incomesharing between the employed and the unemployed. We find that there are situations in which a higher minimum wage raises poverty, others where it reduces poverty, and yet others in which poverty is unchanged. We characterize precisely how the poverty effect depends on four parameters: the degree of poverty aversion, the elasticity of labordemand, the ratio of the minimum wage to the poverty line, and the extent of incomesharing.Thus, shifting the perspective from unemployment to poverty leads to a considerable enrichment of the theory of the minimum wage.

Keywords: poverty; minimum wage; employment; unemployment; incomesharing (search for similar items in EconPapers)
Date: 2005-08
Note: Working Papers
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.esocialsciences.org/Download/repecDownl ... s&AId=169&fref=repec

Related works:
Working Paper: Minimum Wages and Poverty (2005)
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:ess:wpaper:id:169

Access Statistics for this paper

More papers in Working Papers from eSocialSciences
Bibliographic data for series maintained by Padma Prakash ().