Some Deadweight Losses from the Minimum Wage: The Cases of Full and Partial Compliance

Filip Palda

Labor and Demography from University Library of Munich, Germany

Abstract: This paper highlights the social costs from non-price rationing of the labour force due to the minimum wage. By short-circuiting the ability of low reservation-wage workers to underbid high-reservation wage workers, the minimum wage interferes with the market's basic function of grouping the lowest cost workers with the highest productivity firms. The present paper models the deadweight loss that society bears when high reservation-cost workers displace low reservation-cost workers. When firms can evade part or all of the minimum wage, an extra deadweight loss arises. Firms with high evasive ability but low productivity may displace firms with low evasive ability but high productivity.

Keywords: Minimum wage; informal sector; deadweight loss (search for similar items in EconPapers)
JEL-codes: D61 J30 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2001-12-07
New Economics Papers: this item is included in nep-lab
Note: Type of Document - PDF; prepared on IBM PC; to print on HP/PostScript; pages: 39; figures: included/request from author/draw your own. PDF document may be viewed or printed
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https://econwpa.ub.uni-muenchen.de/econ-wp/lab/papers/0112/0112001.pdf (application/pdf)

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Journal Article: Some deadweight losses from the minimum wage: the cases of full and partial compliance (2000)
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpla:0112001

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