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On economic growth and minimum wages

  • Luciano Fanti

    ()

  • Luca Gori

    ()

We offer an analysis of the existence of a positive relationship between minimum wages and economic growth in a fairly standard general equilibrium, one-sector, two-period overlapping generations model, where the usual Romer-typed knowledge spill-over mechanism in production represents the engine of endogenous growth. It is shown that – contrary to the conventional view which has failed to pay due attention to dynamic contexts with labour market rigidities – the minimum-wage economy may grow faster than the competitive-wage economy in spite of a reduced employment rate and, in particular, a growth-maximising minimum wage does exist. A straightforward message is therefore that policymakers may appropriately use minimum wage policies to promote economic growth and individuals’ welfare.

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File URL: http://hdl.handle.net/10.1007/s00712-011-0190-3
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Article provided by Springer in its journal Journal of Economics.

Volume (Year): 103 (2011)
Issue (Month): 1 (May)
Pages: 59-82

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Handle: RePEc:kap:jeczfn:v:103:y:2011:i:1:p:59-82
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