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The Macroeconomic Consequences of Raising the Minimum Wage: Capital Accumulation, Employment and the Wage Distribution

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  • Alexandre Janiak
  • Sofía Bauducco

Abstract

We study the quantitative impact of a rise in the minimum wage on macroeconomic outcomes such as employment, the stock of capital and the distribution of wages. Our modeling framework is the large-firm search and matching model. Our comparative statics are in line with previous empirical findings: a moderate increase in the minimum wage barely affects employment, while it compresses the wage distribution and generates positive spillovers on higher wages. The model also predicts an increase in the stock of capital. Next, we perform the policy experiment of introducing a 10 dollar minimum wage. Our results suggest large positive effects on capital (4.0%) and output (1.8%), with a decrease in employment by 2.8%. The introduction of a 9 dollar minimum wage would instead produce similar effects on capital accumulation without harming employment.

Suggested Citation

  • Alexandre Janiak & Sofía Bauducco, 2017. "The Macroeconomic Consequences of Raising the Minimum Wage: Capital Accumulation, Employment and the Wage Distribution," Documentos de Trabajo 481, Instituto de Economia. Pontificia Universidad Católica de Chile..
  • Handle: RePEc:ioe:doctra:481
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    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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