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Economics Seminar Series – Matthew Dimick, UB Law School

The Minimum Wage and Optimal Redistribution
November 17th, 2017, 3:30pm-5:00pm
444 Fronczak Hall

Abstract: Should the minimum wage be used to alleviate poverty or redistribute income? Although popular among the public, some economists and legal scholars have been skeptical about the wisdom of relying on the minimum wage to accomplish these objectives. A widely-accepted position within law-and-economics holds that the income tax is a more efficient tool for redistribution than the legal system, including rules such as the minimum wage. Challenging this consensus, this paper demonstrates when and why the minimum wage will be a better tool for redistribution than income taxation alone—even if the minimum wage is inefficient. Furthermore, even under conditions when the minimum wage can be used to restore efficiency in the labor market, the optimal (i.e., welfare maximizing) minimum wage will in general be higher than the efficient (i.e., wealth maximizing) minimum wage. Finally, the paper shows how this reasoning applies not just to the minimum wage, but to other redistributive legal rules as well.