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On economic growth and minimum wages

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  • Luciano Fanti
  • Luca Gori

Abstract

We offer an analysis of the existence of a positive relationship between minimum wages and economic growth in a fairly standard general equilibrium, one-sector, two-period overlapping generations model, where the usual Romer-typed knowledge spill-over mechanism in production represents the engine of endogenous growth. It is shown that - contrary to the conventional view which has failed to pay due attention to dynamic contexts with labour market rigidities - the minimum-wage economy may grow faster than the competitive-wage economy in spite of a reduced employment rate and, in particular, a growth-maximising minimum wage does exist. A straightforward message is therefore that policymakers may appropriately use minimum wage policies to promote economic growth and individuals' welfare.
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  • Luciano Fanti & Luca Gori, 2011. "On economic growth and minimum wages," Journal of Economics, Springer, vol. 103(1), pages 59-82, May.
    • Handle: RePEc:kap:jeczfn:v:103:y:2011:i:1:p:59-82
    DOI: 10.1007/s00712-011-0190-3
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    More about this item

    Keywords

    Endogenous growth; Minimum wage; Unemployment; OLG model; H24; J60; O41;
    All these keywords.

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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