Some deadweight losses from the minimum wage: the cases of full and partial compliance

Palda, Filip

doi:10.1016/s0927-5371(00)00019-1

Cited by 16 publications

(15 citation statements)

References 20 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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“…Previous studies tend to impose restrictive assumptions on the shape of the rationing schedule u c . Typically, they assume that rationing is either efficient or uniform (e.g., Lee and Saez, 2012;Palda, 2000). Rationing is efficient if all unemployed individuals have larger costs of work than all employed individuals.…”

Section: Rationing and Its Policy Implications 21 A Simple Model Of mentioning

confidence: 99%

“…Lott (1990), within the context of a binding minimum wage, was the first to argue that rationed jobs might also be allocated inefficiently. This argument has recently been repeated by Palda (2000), Luttmer (2007), and Gerritsen and Jacobs (2015). Unfortunately, the empirical literature provides little guidance when it comes to the efficiency of job allocation.…”

Section: Introductionmentioning

confidence: 99%

Equity and efficiency in rationed labor markets

Gerritsen

2017

Journal of Public Economics

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The social welfare implications of income tax policy are shown to critically depend on whether or not labor markets are rationed – i.e., on the existence of involuntary unemployment. With rationed labor markets, raising taxes on the employed and transfers to the unemployed might improve both equity and efficiency. It improves equity by redistributing income from the employed to the unemployed; it improves efficiency as it encourages people with a small utility surplus of employment to exit the labor market, leaving their jobs for people with a higher utility surplus. I derive conditions under which this result continues to hold when only part of the labor market is rationed, when there is both frictional and rationing unemployment, and when rationing endogenously follows from trade unions' monopoly power

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“…7 See, for example, Bagnoli and Bergstrom (2005, Theorem 4). Earlier references on the role of log-curvature are Prékopa (1971) and An (1998). 8 Even for goods for which individual demand is "thin-tailed", aggregate consumer demand may be fat-tailed when income distribution is very unequal.…”

Section: The Modelmentioning

confidence: 99%

“…3 It has long been understood that the losses from price controls include not just the foregone supply, but also the ine¢ ciency from the fact that the rationed output may not be allocated to the highest-value consumers. For example, Friedman and Stigler (1946), and Glaeser and Luttmer's (2003) well-known study of apartment occupancy in New York City, emphasise these allocative losses from rent controls; Lott (1990), Luttmer (2007), and Palda (2000) discuss these costs in the context of minimum-wage legislation; and MacAvoy and Pindyck (1975), Braeutigam and Hubbard (1986), and Davis and Killian's (2008) careful recent study, analyse the costs of restricting new potential consumers'access to the natural gas market.…”

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confidence: 99%

Price Controls and Consumer Surplus

Bulow

Klemperer

2011

SSRN Journal

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Abstract:The condition for when a price control increases consumer welfare in perfect competition is tighter than often realised. When demand is linear, a small restriction on price only increases consumer surplus if the elasticity of demand exceeds the elasticity of supply; with log-linear or constant-elasticity, demand consumers are always hurt by price controls. The results are best understood -and can be related to monopoly-theory results -using the fact that consumer surplus equals the area between the demand curve and the industry marginal-revenue curve.Acknowledgments to be completed later

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Some deadweight losses from the minimum wage: the cases of full and partial compliance

Cited by 16 publications

References 20 publications

Is a Minimum Wage an Appropriate Instrument for Redistribution?

Is a Minimum Wage an Appropriate Instrument for Redistribution?

Equity and efficiency in rationed labor markets

Price Controls and Consumer Surplus

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