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The Optimality of a Minimum Wage: A Central Planner’s Perspective

56, 1, 1-28, 01, 2020
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* Authors: Chia-Hui Lu
 
* Keywords: Minimum Wage, Search and Matching, Unemployment, Welfare
 
* JEL Classification: E24, J31, J38, J64
 
* Download: 文件下載圖示 (另開新視窗) Full Text
 

* Abstract *
 
  If the government sets different minimum wages for different types of workers, then the minimum wage is not only binding for unskilled labor, but also for skilled labor, when workers’ bargaining power is smaller than its elasticity in the matching function. Moreover, if we consider a tax, the government should tax the labor income of skilled labor and should set a minimum wage for unskilled labor when the workers’ bargaining power is relatively low. In this situation, a binding minimum wage is optimal.
 
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