Searching for the Virtues of the European Model

IMF Working Papers, April 1, 1994

Source details

Author: Gilles Saint-Paul
Date: April 1, 1994
Core proposition: The distributional effects of the minimum wage are analyzed in a model where skilled and unskilled labor enter the production function.
Main argument: Distributional goals are best achieved by letting the labor market clear and achieving redistribution through taxes and transfers.
Note: Also published in Staff Papers, Vol. 41, No. 4, December 1994.
Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Model structure:
- Skilled and unskilled labor both enter the production function.
Distributional analysis:
- The paper analyzes distributional effects of the minimum wage within the specified model framework.
Policy-relevant conclusion:
- Achieving distributional goals via labor-market clearing combined with redistribution through taxes and transfers is argued to be superior to minimum-wage intervention.

Let the labor market clear.
Use taxes and transfers to achieve redistribution rather than relying on minimum wage regulation.

Subject: Income, Income inequality, Labor, Labor markets, Minimum wages, National accounts, Unemployment
Keywords: Europe, full employment, Income, Income inequality, labor market, Labor markets, minimum wage regulation, minimum wage system, Minimum wages, post tax, replacement ratio, Unemployment, unemployment benefit regime, unemployment benefit system, unemployment duration, unemployment rate, unskilled worker, WP