Individual Utility Effects of Minimum Wages in a New Activity-Choice Framework

Abstract

A new model combining occupational and consumption choices into activity choices is applied to estimate the effect of a minimum wage on utility levels. It is shown that utility is affected negatively by a minimum-wage boundary, regardless of whether the individual concerned switches to a different job or to self-employment, or whether he leaves the working sector to pursue activities in the unpaid or consumer sector. So long as wages remain the main tool for redistributing wealth, there will be an unavoidable trade-off between utility maximisation and distributional equality.

Keywords::

• utility
• quality of work
• socio-economics