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Minimum Wage, Credit Rationing and Unemployment in a Monetary Economy

Author

Listed:
  • Forges Davanzati, Guglielmo

    () (Università del Salento)

  • Pacella, Andrea

    () (Università del Sannio)

Abstract

The aim of this paper is to analyse the theoretical links between minimum wage legislation and the level of employment in the theoretical framework of the monetary theory of production (MTP) in which the high-wage effect operates under the constraint of credit rationing at the expense of small firms. It will show that a rise in wages via external intervention, and particularly by means of a minimum wage law, induces firms to accumulate more capital and that this has a positive effect on the level of employment, thus going counter to the mainstream view that labour market deregulation generates positive outcomes. Moreover it will show that the high-wage effect can solve the paradox of profits in the MTP owing to bankruptcies of firms facing credit rationing.

Suggested Citation

  • Forges Davanzati, Guglielmo & Pacella, Andrea, 2008. "Minimum Wage, Credit Rationing and Unemployment in a Monetary Economy," European Journal of Economic and Social Systems, Lavoisier, vol. 21(2), pages 179-194.
  • Handle: RePEc:ris:ejessy:0068
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    Citations

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    Cited by:

    1. Guglielmo Forges Davanzati, 2014. "Unemployment benefits, the 'added worker effect' and income distribution in a monetary economy," Working Papers PKWP1402, Post Keynesian Economics Study Group (PKSG).
    2. Juan Hernández Andreu & Guido Tortorella Expósito, 2014. "Incertidumbre, ciclo económico y crisis según el enfoque continuista del pensamiento keynesiano
      [Uncertainty, economic cycles and economic crises according to the continuism approach of Keynesian t
      ," Iberian Journal of the History of Economic Thought, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Dpto. Historia e Instituciones Económicas I., vol. 1(1), pages 44-72, September.
    3. Guglielmo Forges Davanzati, 2015. "Nicholas Kaldor on endogenous money and increasing returns," Working Papers PKWP1505, Post Keynesian Economics Study Group (PKSG).
    4. Guglielmo Forges Davanzati & Lucia Mongelli, 2017. "Does Rising Unemployment Lead To Policies Of Labour Flexibility? The Italian Case (1990 – 2013)," Working Papers 0026, ASTRIL - Associazione Studi e Ricerche Interdisciplinari sul Lavoro.

    More about this item

    Keywords

    Monetary Theory of Production; Credit Rationing; Wages; Profits; Employment.;

    JEL classification:

    • B51 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Socialist; Marxian; Sraffian
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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