Seminar
Redistribution or Predistribution? Optimal Minimum Wages vs Income Taxes when Workers Differ in Both Hourly Wages and Working hours
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Series
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Speaker
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FieldMacroeconomics
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LocationOnline
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Date and time
June 03, 2021
12:00 - 13:00
The minimum wage is a politically popular policy instrument meant to
improve living standards of the working poor. It has also gained in popularity
among economists as a result of new empirical evidence on its mild employment
effects. Nevertheless, most theoretical studies have a hard time finding a
useful role for the minimum wage alongside the income tax. All of these studies
assume a one-to-one correspondence between wages and income. I reconsider the
case for the minimum wage when people differ in both wages and preferences for
work, such that a given level of income may correspond to different wage rates.
This renders the minimum wage unambiguously desirable in a discrete-type labor
market à la Stiglitz (1982). But desirability of the minimum wage is ambiguous
and subject to a policy trade-off in a continuous-type labor market à la
Mirrlees (1971). Compared to the minimum wage, income taxes are less effective
in affecting the wage distribution but more effective in redistributing income.
The desirability of the minimum wage depends on this trade-off between the
"predistributive" benefits of the minimum wage and the
"redistributive" benefits of the income tax.
Toe participate please email: ae-secr@ese.eur.nl