Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/223427
Authors: 
Economides, George
Kammas, Pantelis
Moutos, Thomas
Year of Publication: 
2020
Series/Report no.: 
CESifo Working Paper 8355
Abstract: 
We explain the public’s support for the minimum wage (MW) institution despite economists’ warnings that the MW is a “blunt instrument” for redistribution. To do so we build a model in which workers are heterogeneous in ability, and the government engages in redistribution through the public provision of private goods. We show that the MW institution is politically viable only when there is a limited degree of in-kind redistribution. To examine the empirical relevance of our hypothesis we investigate the relationship between the probability of adopting MW legislation and the size of primary government spending by employing a dataset of 38 -developing and developed- countries from 1960 to 2017. Probit model estimations yield support for our theoretical prediction that a decrease in government spending increases the likelihood of a country enacting MW legislation. This negative association remains highly robust under alternative empirical specifications and estimation techniques.
Subjects: 
minimum wage
redistribution
heterogeneity
unemployment
JEL: 
E21
E24
H23
J23
Document Type: 
Working Paper

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