TY  - RPRT
        AU  - Cahuc, Pierre
AU  - Laroque, Guy
        TI  - Optimal Taxation and Monopsonistic Labor Market: Does Monopsony Justify the Minimum Wage?
        PY  - 2007/Jul/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 2955
        UR  - https://www.iza.org/index.php/publications/dp2955
        AB  - We analyze optimal taxation in an economy with monopsonistic labor markets. The individuals, whose only decisions are whether to work, or not, have heterogeneous productivities and opportunity costs of work. Given its preferences for redistribution, the government, which does not observe the opportunity costs of work, chooses a tax scheme implementing the second best allocation. We compare the optima in the competitive and monopsonistic environments. We find that the government can always implement the second best allocation of the competitive economy in the monopsonistic environment. The optimal tax schedule comprises employment subsidies financed by taxes on profits. In this setup, there is no room for a minimum wage.
        KW  - optimal taxation
KW  - minimum wage
KW  - monopsony
        ER  -