Optimal Minimum Wage in the Classic Labor Supply and Demand Paradigm

Rajeev Dehejia, Bjorn N. Jorgensen & Raphael C. Thomadsen
Journal of Poverty 12(4): 481-495.

This article demonstrates that minimum wage laws need not induce unemployment even under the classic labor supply-and-demand paradigm. As a result, minimum wage laws can be welfare-enhancing under the basic labor supply and demand model, suggesting the presence of an optimal minimum wage. We discuss conditions under which the optimal minimum wage level is the subsistence wage level. As a consequence, minimum wages should vary across states or countries with the local subsistence levels.

Wagner Faculty