| Publications [#239159] of Edward Tower
search www.econ.duke.edu.Journal Articles
- Gokcekus, O; Tower, E, "An Efficiency Enhancing Minimum Wage",
Journal of Policy Reform, vol. 7 no. 2
(Spring, 2003),
pp. 22pp. [html]
(last updated on 2024/03/27)
Abstract: We consider an economy (e.g., Chile 1973-83 or modern
Turkey) with a minimum wage sector and a free sector, and a
tax on labor earnings. We ask “Can a slightly binding
minimum wage simultaneously raise tax revenue, employment,
and economic efficiency?” We answer “Yes, if the
elasticity of demand for labor in the free sector exceeds
the elasticity of demand in the minimum-wage sector.” The
logical key is that the minimum wage draws high reservation-
wage workers into the labor force, who give up untaxed
leisure in exchange for taxed work and thereby increase
revenue, employment and efficiency.
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