The Optimal Graduated Minimum Wage and Social Welfare

25 Pages Posted: 17 May 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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Date Written: March 21, 2018

Abstract

This paper analyzes the effects of introducing a graduated minimum wage in a model with optimal income taxation in which a government seeks to maximize social welfare. It shows that the optimal graduated minimum wage increases social welfare by increasing the low-productivity 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: D600, H210, J300

Suggested Citation

Danziger, Eliav and Danziger, Leif, The Optimal Graduated Minimum Wage and Social Welfare (March 21, 2018). CESifo Working Paper Series No. 6943, Available at SSRN: https://ssrn.com/abstract=3178563

Eliav Danziger

Princeton University ( email )

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Leif Danziger (Contact Author)

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

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

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