The Optimal Graduated Minimum Wage and Social Welfare

25 Pages Posted: 2 Apr 2018

See all articles by Eliav Danziger

Eliav Danziger

Princeton University

Leif Danziger

Ben-Gurion University of the Negev - Department of Economics; IZA Institute of Labor Economics

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Abstract

This paper analyzes the effects of introducing a graduated minimum wage in a model with optimal in-come taxation in which a government seeks to maximize social welfare. It shows that the optimal graduated minimum wage increases social welfare by increasing the lowproductivity workers' consumption and bringing it closer to the first-best. The paper also describes how the graduated minimum wage in a social welfare optimum depends on important economy characteristics such as the government's revenue needs, the social-welfare weight of low-productivity workers, and the numbers and productivities of the different types of workers.

Keywords: graduated minimum wage, optimal income taxation, social welfare

JEL Classification: D60, H21, J30

Suggested Citation

Danziger, Eliav and Danziger, Leif, The Optimal Graduated Minimum Wage and Social Welfare. IZA Discussion Paper No. 11386, Available at SSRN: https://ssrn.com/abstract=3153350

Eliav Danziger (Contact Author)

Princeton University ( email )

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Leif Danziger

Ben-Gurion University of the Negev - Department of Economics ( email )

Beer-Sheva 84105
Israel
8-6472295 (Phone)
8-6472941 (Fax)

HOME PAGE: http://www.econ.bgu.ac.il/facultym/danziger/main.htm

IZA Institute of Labor Economics

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