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Employment cycles and minimum wages. A macro view

  • Flaschel, Peter
  • Greiner, Alfred

We start from the hypothesis that Goodwin's (1967) distributive cycle does not represent a process of social reproduction that can be considered as adequate and sustainable in the long-run, due to the degradation of a part of the workforce it implies during periods of mass unemployment. Against this background, the paper then formulates an unemployment benefit system and a minimum (and maximum) wage rule for the employed where this form of economic reproduction of capitalism is overcome, at least to a certain extent. There is perfect mobility on the labor market (concerning 'hiring' and 'firing'), with fluctuations of the employment rate made socially acceptable by guaranteeing minimum levels of income to all members of the workforce. We can show in this framework that minimum (and maximum) real wages provide increased stability to the economy by reducing the amount of overshooting in income distribution as well as the employment rate.

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Article provided by Elsevier in its journal Structural Change and Economic Dynamics.

Volume (Year): 20 (2009)
Issue (Month): 4 (December)
Pages: 279-287

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Handle: RePEc:eee:streco:v:20:y:2009:i:4:p:279-287
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/525148

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  1. Olivier Jean Blanchard & Lawrence Katz, 1999. "Wage Dynamics: Reconciling Theory and Evidence," NBER Working Papers 6924, National Bureau of Economic Research, Inc.
  2. Nelson H. Barbosa-Filho & Lance Taylor, 2006. "Distributive And Demand Cycles In The Us Economy-A Structuralist Goodwin Model," Metroeconomica, Wiley Blackwell, vol. 57(3), pages 389-411, 07.
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