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Optimal minimum wages

Ahlfeldt, Gabriel M. ORCID: 0000-0001-5664-3230, Roth, Duncan and Seidel, Tobias (2022) Optimal minimum wages. CEP Discussion Papers (1823). London School of Economics and Political Science. Centre for Economic Performance, London, UK.

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Abstract

We develop a quantitative spatial model with heterogeneous firms and a monopsonistic labour market to derive minimum wages that maximize employment or welfare. Quantifying the model for German micro regions, we find that the German minimum wage, set at 48% of the national mean wage, has increased aggregate worker welfare by about 2.1% at the cost or reducing employment by about 0.3%. The welfare-maximizing federal minimum wage, at 60% of the national mean wage, would increase aggregate worker welfare by 4%, but reduce employment by 5.6%. An employment-maximizing regional wage, set at 50% of the regional mean wage, would achieve a similar aggregate welfare effect and increase employment by 1.1%.

Item Type: Monograph (Discussion Paper)
Official URL: https://cep.lse.ac.uk/_new/publications/discussion...
Additional Information: © 2022 The Authors
Divisions: Geography & Environment
Subjects: H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HB Economic Theory
JEL classification: J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure; Wage Differentials by Skill, Training, Occupation, etc.
J - Labor and Demographic Economics > J5 - Labor-Management Relations, Trade Unions, and Collective Bargaining > J58 - Public Policy
R - Urban, Rural, and Regional Economics > R1 - General Regional Economics > R12 - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade
Date Deposited: 06 Jan 2023 11:27
Last Modified: 15 Sep 2023 23:58
URI: http://eprints.lse.ac.uk/id/eprint/117750

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