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Real Minimum Wage and Growth Theory: Simulations and Some Policy Results

  • Manmohan Lal Agarwal
  • Bharat Hazari
  • Cheuk-Yin Ho

A Solow type two-sector growth model is used to examine several issues related to growth and unemployment in a minimum wage economy. By simulating the model, we demonstrate that given the same percentage increase in wage rate, an economy with a higher capital-labor ratio is more likely to decay. More importantly, a tariff policy reduces the unemployment periods by 92% provided that the current capital-labor ratio is one-sixth of that of the steady state capital-labor ratio. We assume that the first best policy of uniform wage subsidy is not politically feasible.

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Article provided by Taylor & Francis Journals in its journal Journal of Economic Policy Reform.

Volume (Year): 10 (2007)
Issue (Month): 3 ()
Pages: 163-176

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Handle: RePEc:taf:jpolrf:v:10:y:2007:i:3:p:163-176
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