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Minimum Wage Legislation and Economic Growth: Channels and Effects

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  • Mo, Pak Hung

Abstract

Despite decades of experience and research, the effects of minimum wage legislation (MWL) on long-run economic performance have rarely been studied since Stigler’s (1946) classic exposition about the shortcomings of MWL. In this study, we use a novel method to estimate the magnitude and transmission channels by which MWL affect productivity and GDP growth. Our results suggest that countries with MWL have a growth rate of about 20 to 30 percent lower than the sample mean. Although the initial impacts are small, in the ‘steady state’ where the marginal effect of the legislation years equals zero, a country will have a growth rate of about 30 to 38 percent lower than the average.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 35820.

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Date of creation: Dec 2011
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Handle: RePEc:pra:mprapa:35820

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Keywords: minimum wage; GDP growth; private investment; government size; government investment; population growth;

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  1. Cahuc, Pierre & Michel, Philippe, 1996. "Minimum wage unemployment and growth," European Economic Review, Elsevier, vol. 40(7), pages 1463-1482, August.
  2. Robert J. Barro, 2012. "Inflation and Economic Growth," CEMA Working Papers 568, China Economics and Management Academy, Central University of Finance and Economics.
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  4. Lindbeck, Assar & Nyberg, Sten, 2001. "Raising Children To Work Hard: Altruism, Work Norms And Social Insurance," Seminar Papers 691, Stockholm University, Institute for International Economic Studies.
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  8. Neumark, David & Nizalova, Olena Y., 2004. "Minimum Wage Effects in the Longer Run," IZA Discussion Papers 1428, Institute for the Study of Labor (IZA).
  9. Timothy Besley & Robin Burgess, 2002. "Can labour regulation hinder economic performance? Evidence from India," LSE Research Online Documents on Economics 3779, London School of Economics and Political Science, LSE Library.
  10. Mo, Pak Hung, 2000. "Income Inequality and Economic Growth," Kyklos, Wiley Blackwell, vol. 53(3), pages 293-315.
  11. Abigail Barr, 1995. "The missing factor: entrepreneurial networks, enterprises and economic growth in Ghana," CSAE Working Paper Series 1995-11, Centre for the Study of African Economies, University of Oxford.
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  13. Askenazy, Philippe, 2001. "Minimum wage, exports and growth," CEPREMAP Working Papers (Couverture Orange) 0109, CEPREMAP.
  14. Ronald G. Ehrenberg & Alan J. Marcus, 1982. "Minimum Wages and Teenagers' Enrollment-Employment Outcomes: A Multinomial Logit Model," Journal of Human Resources, University of Wisconsin Press, vol. 17(1), pages 39-58.
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