Resource title

A politico-economic analysis of minimum wages and wage subsidies

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Resource description

In this paper we construct a political economy model in which minimum wages are determined according to the wishes of the median voter. Using the minimum wage scheme as the status quo, we show that the replacement of minimum wages by wage subsidies guaranteeing the same (pre-tax) level of income (achieved by the government supplementing the wage income of workers by a subsidy equal to the difference between the competitive wage rate and the minimum wage rate), is not likely to receive political support unless it is supplemented by increased taxation of profits (after-tax profits are also likely to increase). Moreover, we show that the likelihood of implementation of wage subsidies is undermined by the existence of a heterogeneous labour force.

Resource author

Antonis Adam, Thomas Moutos

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Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/25855

Resource license

Adapt according to the presented license agreement and reference the original author.