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Publication . 2014

A Pareto-Improving Minimum Wage

Danziger, Eliav; Danziger, Leif;
Open Access   English  
Published: 01 Jan 2014
Publisher: Munich: Center for Economic Studies and ifo Institute (CESifo)
This paper shows that a graduated minimum wage, in contrast to a constant minimum wage, can provide a strict Pareto improvement over what can be achieved with an optimal income tax. The reason is that a graduated minimum wage requires high-productivity workers to work more to earn the same income as low-productivity workers, which makes it more difficult for the former to mimic the latter. In effect, a graduated minimum wage allows the low-productivity workers to benefit from second-degree price discrimination which increases their income.
Subjects by Vocabulary

Dewey Decimal Classification: ddc:330


J30, graduated minimum wage, Pareto improvement