A pareto-improving minimum wage

Eliav Danziger, Leif Danziger

Research output: Contribution to journalArticlepeer-review

7 Scopus citations

Abstract

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.

Original languageEnglish
Pages (from-to)236-252
Number of pages17
JournalEconomica
Volume82
Issue number326
DOIs
StatePublished - 1 Apr 2015

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