Minimum Wage and Income Distribution

Abstract

To the extent that the minimum wage can reduce income inequality through its wage contour effects and it affects the broader middle class, it may challenge some of the fundamental assumptions of the median voter theorem. Based on Anthony Downs’ (1957) model of political competition, the median voter theorem holds that as income distributions are skewed to the right, the preferred amount of redistribution is a function of the relative position of the median voter on the income scale. The greater the distance between the median voter’s income and society’s average income, the greater is society’s preferred amount of redistribution. The fundamental assumption being that redistribution will take place through taxation. Data from the Current Population Survey, however, shows that the minimum wage’s welfare effects potentially mitigate the need for redistribution because the distance between the median voter’s income and the average of society is effectively narrowed.