On economic growth and minimum wages

Fanti, Luciano and Gori, Luca (2010): On economic growth and minimum wages.

Abstract

We offer an analysis of the existence of a positive relationship between minimum wages and economic growth in a simple one-sector overlapping generations economy where the usual Romer-typed knowledge spill-over mechanism in production represents the engine of endogenous growth, in the case of both homogeneous and heterogeneous (i.e., skilled and unskilled) labour. Assuming also the existence of unemployment benefits financed with consumption taxes not conditioned on age at a balanced budget, it is shown that minimum wages may stimulate economic growth and welfare despite the unemployment occurrence. Moreover, a growth-maximising minimum wage can exist. A straightforward message, therefore, is that a combination of minimum wage and unemployment benefit policies can appropriately be used to promote balanced growth and welfare.

• Item Type: MPRA Paper
• Language: English
• Keywords: Endogenous growth; Minimum wage; Unemployment; OLG model
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O41 - One, Two, and Multisector Growth Models; J - Labor and Demographic Economics > J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers > J60 - General; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H24 - Personal Income and Other Nonbusiness Taxes and Subsidies

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