The Optimal Minimum Wage with Regulatory Uncertainty

30 Pages Posted: 26 Dec 2015

See all articles by John Bennett

John Bennett

Brunel University London - Economics and Finance; Institute for the Study of Labor (IZA); University of Wales, Swansea - School of Business and Economics; Centre for Economic Policy Research (CEPR)

Ioana Chiovenanu

Brunel University London

Abstract

For two different regulatory standards, we examine the optimal minimum wage in a competitive labour market when the government is uncertain about supply and demand. Solutions are related to underlying supply and demand conditions, and the extent of uncertainty and of rationing efficiency. We show that regulatory uncertainty does not diminish the rationale for intervention, but may require a low minimum wage that may not bind. With expected earnings-maximization, greater uncertainty widens the range of parameter values for which a minimum wage should be set. With expected worker surplus-maximization and sufficiently efficient rationing, a minimum wage should always be set.

Keywords: minimum wage, uncertainty, worker surplus

JEL Classification: J38, J31

Suggested Citation

Bennett, John and Chioveanu, Ioana, The Optimal Minimum Wage with Regulatory Uncertainty. IZA Discussion Paper No. 9576. Available at SSRN: https://ssrn.com/abstract=2708389

John Bennett (Contact Author)

Brunel University London - Economics and Finance ( email )

Uxbridge UB8 3PH
United Kingdom
+44 1895 816 201 (Phone)
+44 1895 203 384 (Fax)

Institute for the Study of Labor (IZA)

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

University of Wales, Swansea - School of Business and Economics ( email )

Singleton Park
Swansea, Wales SA2 8PP SA2 8PP
United Kingdom
+44 1792 295 168 (Phone)
+44 1792 295 872 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Ioana Chioveanu

Brunel University London

Kingston Lane
Uxbridge, Middlesex UB8 3PH
United Kingdom

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