Lifting up the working poor: predistribution and redistribution at the low end of the wage spectrum

Minimum wages and taxes and transfers are prominent examples of pre and redistributive policies in the area of low pay in Europe and the U.S.Despite their pervasive coexistence and extensive research on their effects, the two have been mostly studied in isolation. This has limited our ability to evaluate their interplay in the labor market and identify joint design options to effectively support the working poor. With these goals, our first contribution is to examine the pre and redistributive components of low-income support jointly. We will develop an empirically grounded model of the low-wage labor market, which can be used to evaluate the impact of alternative joint designs of minimum wages and taxes on labor market equilibrium in a realistic way. This requires new empirical evidence on how the two interact and on the fundamental features of the market environment in which they operate.Minimum wages are widely popular, although according to standard normative theory their existence is not justified if governments can redistribute with taxes. Why, then, are minimum wages so socially and politically successful? Our second contribution is to uncover what drives support for pre and redistribution to the working poor. Besides enriching our knowledge of the political feasibility of reforms in this area, evidence on policy preferences will be central to characterizing an optimal redistribution policy based on a new notion of welfare desirability, which considers not only the material interest of individuals as market participants, but also their policy preferences as citizens.Academically, this is groundbreaking since it overcomes multiple empirical and theoretical divides in both positive and normative analysis, with the end goal of characterizing the optimal configuration of low-income support policies. Practically, it will provide guidance for concrete reform actions, highlighting their economic and distributional implications and their political feasibility.