Optimal minimum wages

Abstract

"We develop a quantitative spatial model with heterogeneous firms and a monopsonistic labour market to derive minimum wages that maximize employment or welfare. Quantifying the model for German micro regions, we find that the German minimum wage, set at 48% of the national mean wage, has increased aggregate worker welfare by about 2.1% at the cost or reducing employment by about 0.3%. The welfare-maximizing federal minimum wage, at 60% of the national mean wage, would increase aggregate worker welfare by 4%, but reduce employment by 5.6%. An employment-maximizing regional wage, set at 50\% of the regional mean wage, would achieve a similar aggregate welfare effect and increase employment by 1.1%." (Author's abstract, IAB-Doku) ((en))

Cite article

Ahlfeldt, G., Roth, D. & Seidel, T. (2022): Optimal minimum wages. (CEPR discussion paper 16913), London, 95 p.