The Optimal Minimum Wage with Regulatory Uncertainty

Bennett, John; Chioveanu, Ioana

Abstract

For two different regulatory standards, we examine the optimal minimum wage in a competitive labor market when the government is uncertain about supply and demand. Solutions are related to underlying supply and demand conditions, and to the extent of uncertainty and of rationing efficiency. With expected earnings maximization, greater uncertainty widens the range of parameter values for which a minimum wage should be set. With expected worker surplus maximization and sufficiently efficient rationing, a minimum wage should always be set. However, in both cases regulatory uncertainty may require a low minimum wage that may not bind in equilibrium.

• Journal Article Type: Article
• Acceptance Date: Sep 17, 2017
• Online Publication Date: Oct 20, 2017
• Publication Date: 2017-12
• Deposit Date: Mar 12, 2020
• Publicly Available Date: Apr 8, 2020
• Journal: Journal of Public Economic Theory
• Print ISSN: 1097-3923
• Electronic ISSN: 1467-9779
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 19
• Issue: 6
• Pages: 1136-1153
• DOI: https://doi.org/10.1111/jpet.12276
• Keywords: minimum wage; uncertainty; worker surplus
• Public URL: https://nottingham-repository.worktribe.com/output/4132160
• Publisher URL: https://onlinelibrary.wiley.com/doi/full/10.1111/jpet.12276