A Minimum-Wage Model of Unemployment and Growth: The Case of a Backward-Bending Demand Curve for Labor
AbstractWe add a minimum wage and hence involuntary unemployment to a conventional two-sector model of a perfectly competitive economy with optimal saving and endogenous growth. Our resulting model highlights the possible case of a backward-bending demand curve for labor, along which a hike in the minimum wage might increase total employment. This possibility provides theoretical support for some controversial empirical studies, which challenge the textbook prediction of an inverse relationship between employment and the minimum wage. Our model also implies that a minimum-wage hike has negative implications for both the growth rate and lifetime utility.
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Bibliographic InfoPaper provided by Carleton University, Department of Economics in its series Carleton Economic Papers with number 14-05.
Length: 24 pages
Date of creation: 03 Jul 2014
Date of revision:
Publication status: Published: Carleton Economic Papers
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Find related papers by JEL classification:
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-08-02 (All new papers)
- NEP-DGE-2014-08-02 (Dynamic General Equilibrium)
- NEP-LAB-2014-08-02 (Labour Economics)
- NEP-MAC-2014-08-02 (Macroeconomics)
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