Minimum Wage Legislation and Unemployment Insurance as Instruments for Redistribution.

The use of minimum wages and unemployment insurance as instruments for redistributing income is analyzed. The government is assumed to be able to implement an optimal income tax in an economy consisting of two types of individuals who differ in ability. The effect of introducing a minimum wage that induces involuntary unemployment will be to improve social welfare under weak conditions. Circumstances under which combining unemployment insurance with the minimum wage will be welfare-improving are also considered. Copyright 1994 by The editors of the Scandinavian Journal of Economics.