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Real Minimum Wage and Growth Theory: Simulations and Some Policy Results

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Author Info

  • Manmohan Lal Agarwal
  • Bharat Hazari
  • Cheuk-Yin Ho

Abstract

A Solow type two-sector growth model is used to examine several issues related to growth and unemployment in a minimum wage economy. By simulating the model, we demonstrate that given the same percentage increase in wage rate, an economy with a higher capital-labor ratio is more likely to decay. More importantly, a tariff policy reduces the unemployment periods by 92% provided that the current capital-labor ratio is one-sixth of that of the steady state capital-labor ratio. We assume that the first best policy of uniform wage subsidy is not politically feasible.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/17487870701440598
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Journal of Economic Policy Reform.

Volume (Year): 10 (2007)
Issue (Month): 3 ()
Pages: 163-176

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Handle: RePEc:taf:jpolrf:v:10:y:2007:i:3:p:163-176

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Related research

Keywords: Minimum wage; decay; growth; unemployment;

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Cited by:
  1. Fung, Ka Wai Terence & Lau, Chi Keung Marco & Chan, Kwok Ho, 2013. "A R&D Based Real Business Cycle Model," MPRA Paper 52571, University Library of Munich, Germany.

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