Optimal Taxation and Monopsonistic Labor Market: Does Monopsony justify the Minimum Wage?

Pierre Cahuc (1, 2, 3, 4) , Guy Laroque (2, 5)

1 X-DEP-ECO - Département d'Économie de l'École Polytechnique
2 CREST - Centre de Recherche en Économie et Statistique
3 IZA
4 Center for Economic Research
5 UCL - University College of London [London]

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 adopt a definition most favorable to the minimum wage: the minimum wage is useful whenever it can replace a non negligible part of the tax schedule. The minimum wage is useful to correct the inefficiencies associated with the monopsony when there is a single skill. But the minimum wage is not useful any more when there are a continuum of skills.

Mots clés: Minimum wage; Optimal taxation; Monopsony.; Monopsony

Domaines: Economies et finances

Pierre Cahuc, Guy Laroque. Optimal Taxation and Monopsonistic Labor Market: Does Monopsony justify the Minimum Wage?. 2009. ⟨hal-00396252⟩