A Pareto-Improving Minimum Wage

Eliav Danziger () and Leif Danziger ()
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Eliav Danziger: Simon Fraser University

No 8123, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper shows that a graduated minimum wage, in contrast to a constant minimum wage, can provide a strict Pareto improvement over what can be achieved with an optimal income tax. The reason is that a graduated minimum wage requires high-productivity workers to work more to earn the same income as low-productivity workers, which makes it more difficult for the former to mimic the latter. In effect, a graduated minimum wage allows the low-productivity workers to benefit from second-degree price discrimination which increases their income.

Keywords: Pareto improvement; graduated minimum wage (search for similar items in EconPapers)
JEL-codes: J30 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2014-04
New Economics Papers: this item is included in nep-lab
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Published - published in: Economica, 2015, 82(326), 236–252

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Related works:
Journal Article: A Pareto-improving Minimum Wage (2015)
Working Paper: A Pareto-Improving Minimum Wage (2014)
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