Equity and efficiency in rationed labor markets

Gerritsen, Aart

doi:10.1016/j.jpubeco.2017.07.001

Cited by 9 publications

(9 citation statements)

References 45 publications

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“…This has been pointed out by a number of earlier studies (e.g. Lott ; Marceau and Boadway ; Palda ; Luttmer ; Lee and Saez ; Gerritsen ) . What has not previously been recognized is that the rationing schedule also crucially determines the effect of the minimum wage on government revenue.…”

Section: Welfare Analysismentioning

confidence: 66%

Is a Minimum Wage an Appropriate Instrument for Redistribution?

Gerritsen

Jacobs

2019

Economica

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We analyse the redistributional (dis)advantages of a minimum wage over income taxation in competitive labour markets without imposing assumptions on the (in)efficiency of labour rationing. Compared to a distributionally equivalent tax change, a minimum‐wage increase raises involuntary unemployment, but also raises skill formation as some individuals avoid unemployment. A minimum wage is an appropriate instrument for redistribution if and only if the public revenue gains from additional skill formation outweigh both the public revenue losses from additional unemployment and the utility losses of inefficient labour rationing. We show that this critically depends on how labour rationing is distributed among workers. A necessary condition for the desirability of a minimum‐wage increase is that the public revenue gains from higher skill formation outweigh the revenue losses from higher unemployment. We write this condition in terms of measurable sufficient statistics.

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Section: Welfare Analysismentioning

confidence: 66%

Is a Minimum Wage an Appropriate Instrument for Redistribution?

Gerritsen

Jacobs

2019

Economica

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“…However, within the field of public economics, the possible existence of labor demand restrictions have largely been neglected. Recent exceptions areLandais, Michaillat, and Saez (2013) andGerritsen (2013).…”

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confidence: 99%

Optimal taxation when people do not maximize well-being

Gerritsen

2016

Journal of Public Economics

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I derive the optimal nonlinear income tax when individuals do not necessarily maximize their own well-being. This generates a corrective argument for taxation: optimal marginal taxes are higher (lower) if individuals work too much (too little) from a well-being point of view. I allow for multi-dimensional heterogeneity and derive the optimal tax schedule in terms of measurable sufficient statistics. One of these statistics measures the degree to which individuals fail to optimize their labor supply. I empirically estimate this by using British life satisfaction data as a measure of well-being. I find that low-income workers tend to work 'too little' and high-income workers 'too much,' providing a motive for lower marginal tax rates at the bottom and higher marginal tax rates at the top of the income distribution

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“…If labor markets are competitive, there is no involuntary unemployment and Assumption 2 is trivially satisfied. However, if there is involuntary unemployment, there is no reason to believe that only individuals with the highest participation costs bear the burden of unemployment, see also Gerritsen (2017). The assumption of efficient rationing clearly biases our results in favor of unions and will be relaxed in Section 6.2.…”

Section: Unions and Labor-market Equilibriummentioning

confidence: 85%

“…In most of what follows, we assume that labor rationing is efficient (cf. Lee and Saez, 2012, Gerritsen, 2017, and Gerritsen and Jacobs, 2018.…”

Section: Unions and Labor-market Equilibriummentioning

confidence: 99%

Optimal Income Taxation in Unionized Labor Markets

Hummel

Jacobs

2018

SSRN Journal

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This paper extends the Diamond (1980) model with labor unions to study optimal income taxation and to analyze whether unions can be desirable for income redistribution. Unions bargain with firms over wages in each sector and firms unilaterally determine employment. Unions raise the efficiency costs of income redistribution, because unemployment benefits and income taxes raise wage demands and thereby generate involuntary unemployment. Optimal unemployment benefits and optimal income taxes are lower in unionized labor markets. We show that unions are socially desirable only if they represent (low-income) workers whose participation is subsidized on a net basis. By creating implicit taxes on work, unions alleviate the labor-market distortions caused by income taxation. Numerical simulations demonstrate that optimal taxes and transfers are much less redistributive in unionized labor markets than in competitive labor markets.

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Equity and efficiency in rationed labor markets

Cited by 9 publications

References 45 publications

Is a Minimum Wage an Appropriate Instrument for Redistribution?

Is a Minimum Wage an Appropriate Instrument for Redistribution?

Optimal taxation when people do not maximize well-being

Optimal Income Taxation in Unionized Labor Markets

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