Munich Personal RePEc Archive

Can a reduction in credit card processing fees offset the effect of a hike in the minimum wage?

La, Jung Joo (2019): Can a reduction in credit card processing fees offset the effect of a hike in the minimum wage? Published in: EconModels.com (31 December 2019): pp. 1-36.

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Abstract

The objective of this study is to assess whether a reduction in credit card processing fees can offset the effect of a hike in the minimum wage by examining the unique case of South Korea. To do so, this study introduces a theoretical model with money and credit as the explicit means of payment. In particular, it develops a general equilibrium model with micro-foundations for dealing with the relationship between minimum wage increases and job automation, and takes a long-run approach in the quantitative analysis. Contrary to the existing literature, the study shows that a minimum wage hike negatively and significantly affects overall employment. The calibrated results show that a 13.6% hike in the minimum wage causes a 16.46% reduction in the demand for simple labor earning the minimum wage, and also decreases the demand for non-simple labor by 0.157%. In contrast, if a policy of reducing credit card processing fees is adopted to ease the negative effect of a hike in minimum wage on employment, a 0.65% reduction in these fees (derived by shifting the burden of interest on credit card debt from seller to buyer) results in a 0.09% decrease in the labor demand.

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