Deserving Poor and the Desirability of a Minimum Wage
45 Pages Posted: 6 Sep 2014
This paper provides a novel justification for using a minimum wage to supplement an optimal tax-and-transfer system. We demonstrate that if labor supply decisions are concentrated along the intensive margin and employment is efficiently rationed, a minimum wage can be socially beneficial by serving as a screening device that targets benefits to the deserving poor. We also show that with a minimum wage in place, a negative marginal tax rate may not be optimal.
Keywords: deserving poor, minimum wage, redistribution, efficient rationing, negative marginal tax rate
JEL Classification: D6, H2, H5
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