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Optimal Taxation and Monopsonistic Labor Market: Does Monopsony Justify the Minimum Wage?
Author(s) -
CAHUC PIERRE,
LAROQUE GUY
Publication year - 2014
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/jpet.12063
Subject(s) - monopsony , economics , wage , minimum wage , point (geometry) , distribution (mathematics) , labour economics , efficiency wage , microeconomics , mathematical analysis , geometry , mathematics
Does monopsony on the labor market in itself justify the implementation of a minimum wage when it would not be used in a competitive economy? This issue is studied in a model of optimal taxation. We find that there is no room for the minimum wage when there are a continuum of skills with no isolated mass point at the bottom of the wage distribution. Accordingly, in the empirically relevant situation, where there is a continuum of wages at the bottom of the distribution, the minimum wage is not helpful.