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Employment Cycles, Low Income Work and the Dynamic Impact of Minimum Wages. A Macro Perspective

Listed author(s):
  • Peter Flaschel


    (Univeristy of Bielefeld, Germany)

  • Alfred Greiner


    (Univeristy of Bielefeld, Germany)

  • Camille Logeay


    (Macroeconomic Policy Institute (IMK) at the Hans Boeckler Foundation)

  • Christian Proano


    (Macroeconomic Policy Institute (IMK) at the Hans Boeckler Foundation)

In this paper we investigate the macroeconomic consequences of the introduction of an unemployment benefit system and a minimum wage barrier for both skilled and unskilled workers against the background of Goodwin's (1967) model. In the analyzed framework, characterized by free "hiring" and "firing" in the first labor markets, we can show a) that large fluctuations in employment are made (at least partially) socially acceptable through the workfare nature of the unemployment benefit system and b) that minimum real wages provide additional stability to the system dynamics by decreasing the amplitude of the fluctuations in employment and income distribution (and the related degradation of the workforce skills and family structures they are otherwise subject to).

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Paper provided by IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute in its series IMK Working Paper with number 4-2010.

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Length: 28 pages
Date of creation: 2010
Handle: RePEc:imk:wpaper:4-2010
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