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  5. Minimum Wages and Poverty with Income-Sharing

Minimum Wages and Poverty with Income-Sharing

File(s)
Fields4_Fields_Kanbur.pdf (684.97 KB)
Permanent Link(s)
https://hdl.handle.net/1813/75858
Collections
Faculty Publications - Labor Economics
ILR Articles and Chapters
Author
Fields, Gary S.
Kanbur, Ravi
Abstract

Textbook analysis tells us that in a competitive labor market, the introduction of a minimum wage in terms of poverty rather than in terms of unemployment. This paper makes three contributions to the basic theory of the minimum wage. First, we analyze the effects of a higher minimum wage in terms of poverty rather than in terms of unemployment. Second, we extend the standard textbook model to allow for income-sharing between employed and unemployed persons in society. Third, we extend the basic model to deal with income sharing within families. We find that there are situations in which a higher minimum wage raises poverty, others where it reduces poverty, and yet others in which poverty is unchanged. We characterize precisely how the poverty effect depends on four parameters: the degree of poverty aversion, the elasticity of labor demand, the ratio of the minimum wage to the poverty line, and the extent of income-sharing. Thus, shifting the perspective from unemployment to poverty leads to a considerable enrichment of the theory of the minimum wage.

Date Issued
2007-03-01
Keywords
Minimum wage
•
poverty
•
unemployment
Related DOI
https://doi.org/10.1007/s10888-006-9037-5
Rights
Required Publisher Statement: Copyright by Springer Verlag. Final version published as Fields, G. & Kanbur, R. (2007). Minimum wages and poverty with income-sharing. Journal of Economic Inequality, 5(2), 135-147.
Type
article

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