How to Have your Cake and Eat it Too: Resolving the Efficiency- Equity Trade-off in Minimum Wage Legislation

Download Edit this record How to cite View on PhilPapers
Abstract
Minimum wages are usually assumed to be inefficient as they prevent the full exploitation of mutual gains from trade. Yet advocates of wage regulation policies have repeatedly claimed that this loss in market efficiency can be justified by the pursuit of ethical goals. Policy makers, it is argued, should not focus on efficiency alone. Rather, they should try to find an adequate balance between efficiency and equity targets. This idea is based on a two-worlds-paradigm that sees ethics and economics as two inherently conflicting ways of thinking. We, however, believe that this view of the relationship between ethics and economics is fundamentally flawed and blurs our understanding of how an ethically responsible regulation of the labour market should be conducted. In drawing on an economic-ethical approach that resolves the antinomy between efficiency and equity, we show that ethics and economics are, in fact, two sides of the same coin and that minimum wage legislation can only be ethically responsible, if it is at the same time economically efficient. In other words, we can have our cake and eat it too. On the basis of our approach, we develop two simple game theoretical models for different types of labour markets and derive policy implications from an economic-ethical viewpoint. We suggest that under the assumption of perfectly competitive labour markets a tax-funded wage subsidy is preferable over minimum wages, as it makes everyone better off. If, however, employers have monopsony power in the wage setting process, the minimum wage is justifiable under certain conditions.
PhilPapers/Archive ID
MUKHTH
Upload history
Archival date: 2015-11-21
View other versions
Added to PP index
2013-12-02

Total views
675 ( #8,581 of 64,072 )

Recent downloads (6 months)
14 ( #40,257 of 64,072 )

How can I increase my downloads?

Downloads since first upload
This graph includes both downloads from PhilArchive and clicks on external links on PhilPapers.