A Minimum-Wage Model of Unemployment and Growth: The Case of a Backward-Bending Demand Curve for Labor
We add a minimum wage and hence involuntary unemployment to a conventional two-sector model of a perfectly competitive economy with optimal saving and endogenous growth. Our resulting model highlights the possible case of a backward-bending demand curve for labor, along which a hike in the minimum wage might increase total employment. This possibility provides theoretical support for some controversial empirical studies, which challenge the textbook prediction of an inverse relationship between employment and the minimum wage. Our model also implies that a minimum-wage hike has negative implications for both the growth rate and lifetime utility.
|Date of creation:||03 Jul 2014|
|Date of revision:|
|Publication status:||Published: Carleton Economic Papers|
|Contact details of provider:|| Postal: |
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bagicha S. Minhas, 1962. "The Homohypallagic Production Function, Factor-Intensity Reversals, and the Heckscher-Ohlin Theorem," Journal of Political Economy, University of Chicago Press, vol. 70, pages 138.
- Manning, Alan, 1995.
"How Do We Know That Real Wages Are Too High?,"
The Quarterly Journal of Economics,
MIT Press, vol. 110(4), pages 1111-25, November.
- Richard A. Brecher & Zhiqi Chen & Zhihao Yu, 2013.
"The Trouble with Offshoring: Static and Dynamic Losses in the Presence of Unemployment,"
The World Economy,
Wiley Blackwell, vol. 36(1), pages 1-11, 01.
- Richard A. Brecher & Zhiqi Chen & Zhihao Yu, 2011. "The Trouble with Offshoring: Static and Dynamic Losses in the Presence of Unemployment," Carleton Economic Papers 11-02, Carleton University, Department of Economics, revised Jan 2013.
- Lee, David & Saez, Emmanuel, 2012. "Optimal minimum wage policy in competitive labor markets," Journal of Public Economics, Elsevier, vol. 96(9-10), pages 739-749.
- Daron Acemoglu, 2010.
"When Does Labor Scarcity Encourage Innovation?,"
Journal of Political Economy,
University of Chicago Press, vol. 118(6), pages 1037 - 1078.
- David Neumark & J. M. Ian Salas & William Wascher, 2014.
"Revisiting the Minimum Wage–Employment Debate: Throwing Out the Baby with the Bathwater?,"
Industrial and Labor Relations Review,
ILR Review, Cornell University, ILR School, vol. 67(2.5), pages 608-648, May.
- Neumark, David & Salas, J.M. Ian & Wascher, William, 2013. "Revisiting the Minimum Wage-Employment Debate: Throwing Out the Baby with the Bathwater?," IZA Discussion Papers 7166, Institute for the Study of Labor (IZA).
- David Neumark & J.M. Ian Salas & William Wascher, 2013. "Revisiting the Minimum Wage-Employment Debate: Throwing Out the Baby with the Bathwater?," NBER Working Papers 18681, National Bureau of Economic Research, Inc.
- Xavier Sala-i-Martin, 1995.
"Transfers, social safety nets and economic growth,"
Economics Working Papers
139, Department of Economics and Business, Universitat Pompeu Fabra.
- Xavier Sala-I-Martin, 1997. "Transfers, Social Safety Nets, and Economic Growth," IMF Staff Papers, Palgrave Macmillan, vol. 44(1), pages 81-102, March.
- Robert J. Barro, 1995.
"Inflation and Economic Growth,"
NBER Working Papers
5326, National Bureau of Economic Research, Inc.
- T.N. Srinivasan, 1962. "On a Two Sector Model of Growth," Cowles Foundation Discussion Papers 139R, Cowles Foundation for Research in Economics, Yale University.
- Flinn, Christopher, 2003. "Minimum Wage Effects on Labor Market Outcomes under Search with Bargaining," IZA Discussion Papers 949, Institute for the Study of Labor (IZA).
- Brecher, Richard A., 1974. "Optimal commercial policy for a minimum-wage economy," Journal of International Economics, Elsevier, vol. 4(2), pages 139-149, May.
- Cahuc, P. & Michel, P., 1992.
"Minimum Wage, Unemployment and Growth,"
Papiers d'Economie MathÃ©matique et Applications
92.35, UniversitÃ© PanthÃ©on-Sorbonne (Paris 1).
When requesting a correction, please mention this item's handle: RePEc:car:carecp:14-05. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sabrina Robineau)
If references are entirely missing, you can add them using this form.