Pareto Improving Minimum Wage Laws.

By increasing the expected wage in low skill jobs, a minimum wage law can reduce the incentive for low skill workers to imitate high skill workers in the signaling process. The gain from reduced investment in the signal can more than offset the loss from unemployment among low skill workers so that total output increases. Moreover, with an appropriate poll tax on workers to compensate owners of capital, the law can make all workers and owners of capital better off. Copyright 1987 by Oxford University Press.