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Economic Growth and Welfare in a Neoclassical Overlapping Generations Growth Model with Minimum Wages and Consumption Taxes

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  • Luciano Fanti
  • Luca Gori

Abstract

We examine the effects of minimum wages on both the long-run per worker GDP and welfare in the textbook Diamond style overlapping generations economy. In addition, we assume the existence of unemployment benefits financed at a balanced budget with consumption taxes. Under suitable conditions, it is shown that a regulated-wage economy with unemployment performs better than a competitive-wage economy with full employment in the long run. Moreover, a welfare-maximizing minimum wage exists. Our findings may have interesting policy implications. Copyright 2010 CEIS, Fondazione Giacomo Brodolini and Blackwell Publishing Ltd.

Suggested Citation

  • Luciano Fanti & Luca Gori, 2010. "Economic Growth and Welfare in a Neoclassical Overlapping Generations Growth Model with Minimum Wages and Consumption Taxes," LABOUR, CEIS, vol. 24(3), pages 238-262, September.
  • Handle: RePEc:bla:labour:v:24:y:2010:i:3:p:238-262
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