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Employment cycles and minimum wages. A macro view

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  • Flaschel, Peter
  • Greiner, Alfred

Abstract

We start from the hypothesis that Goodwin's (1967) distributive cycle does not represent a process of social reproduction that can be considered as adequate and sustainable in the long-run, due to the degradation of a part of the workforce it implies during periods of mass unemployment. Against this background, the paper then formulates an unemployment benefit system and a minimum (and maximum) wage rule for the employed where this form of economic reproduction of capitalism is overcome, at least to a certain extent. There is perfect mobility on the labor market (concerning 'hiring' and 'firing'), with fluctuations of the employment rate made socially acceptable by guaranteeing minimum levels of income to all members of the workforce. We can show in this framework that minimum (and maximum) real wages provide increased stability to the economy by reducing the amount of overshooting in income distribution as well as the employment rate.

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Bibliographic Info

Article provided by Elsevier in its journal Structural Change and Economic Dynamics.

Volume (Year): 20 (2009)
Issue (Month): 4 (December)
Pages: 279-287

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Handle: RePEc:eee:streco:v:20:y:2009:i:4:p:279-287

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Web page: http://www.elsevier.com/locate/inca/525148

Related research

Keywords: Distributive growth cycles Unemployment insurance Minimum wages Wage-share error correction;

References

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  1. Lawrence F. Katz & Olivier Blanchard, 1999. "Wage Dynamics: Reconciling Theory and Evidence," American Economic Review, American Economic Association, vol. 89(2), pages 69-74, May.
  2. Nelson H. Barbosa-Filho & Lance Taylor, 2006. "Distributive And Demand Cycles In The Us Economy-A Structuralist Goodwin Model," Metroeconomica, Wiley Blackwell, vol. 57(3), pages 389-411, 07.
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Citations

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Cited by:
  1. Toichiro Asada & Peter Flaschel & Alfred Greiner & Christian Proano, 2010. "Sustainable Capitalism: Full-Employment Flexicurity Growth with Real Wage Rigidities," IMK Working Paper 5-2010, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  2. Sasaki, Hiroaki & Matsuyama, Jun & Sako, Kazumitsu, 2013. "The macroeconomic effects of the wage gap between regular and non-regular employment and of minimum wages," Structural Change and Economic Dynamics, Elsevier, vol. 26(C), pages 61-72.
  3. Hiroaki Sasaki & Jun Matsuyama & Kazumitsu Sako, 2012. "The Macroeconomic Effects of the Wage Gap between Regular and Non-Regular Employment and Minimum Wages," Discussion papers e-12-003, Graduate School of Economics Project Center, Kyoto University.

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