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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 simple one-sector overlapping generations economy where the usual Romer-typed knowledge spill-over mechanism in production represents the engine of endogenous growth, in the case of both homogeneous and heterogeneous (i.e., skilled and unskilled) labour. Assuming also the existence of unemployment benefits financed with consumption taxes not conditioned on age at a balanced budget, it is shown that minimum wages may stimulate economic growth and welfare despite the unemployment occurrence. Moreover, a growth-maximising minimum wage can exist. A straightforward message, therefore, is that a combination of minimum wage and unemployment benefit policies can appropriately be used to promote balanced growth and 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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