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Minimum Wage Policy with Optimal Taxes and Unemployment

Adam Lavecchia ()

Department of Economics Working Papers from McMaster University

Abstract: Using a search model, I derive formula that links the welfare gains from the minimum wage to its effect on low-skilled labor force participation and employment. This formula shows that the minimum wage is welfare improving if pushing the low-skilled labor market tightness downwards brings it closer to its efficient level. I estimate the causal effect of the minimum wage on low-skilled labor force participation and employment using federal and state minimum wage variation. I discuss the policy implications of my estimates when viewed through the lens of the marginal welfare gain formula.

Keywords: Minimum wage; Sufficient statistics; Optimal policy; Labor force participation (search for similar items in EconPapers)
JEL-codes: H21 H23 J21 J38 J64 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-lma and nep-pub
Date: 2019-02
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Working Paper: Minimum Wage Policy with Optimal Taxes and Unemployment (2018) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:mcm:deptwp:2019-03

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