Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/34638 
Year of Publication: 
2007
Series/Report no.: 
IZA Discussion Papers No. 2957
Publisher: 
Institute for the Study of Labor (IZA), Bonn
Abstract: 
We build a theoretical model to study whether a minimum wage can be welfare-improving if it is implemented in conjunction with an optimized nonlinear income tax. We consider this issue in a framework where search frictions on the labor market generate unemployment. Workers differ in productivity. The government does not observe workers' productivity but only their wages. Hence, the redistributive policy solves an adverse selection problem. We show that a minimum wage is optimal if the bargaining power of the workers is relatively low. However, if the government controls the bargaining power, then it is preferable to set a sufficiently high bargaining power.
Document Type: 
Working Paper

Files in This Item:
File
Size
415.54 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.