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Effects on the Cross-Country Difference in the Minimum Wage on International Trade, Growth and Unemployment

Author

Listed:
  • Chihiro Inaba

    (Department of Economics, Kobe University)

  • Katsufumi Fukuda

    (Graduate School of Social Science, Hiroshima University, Japan and Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

Abstract

We construct a dynamic general-equilibrium North-South growth model with international trade with both homogenous and heterogeneous firms, endogenous northern economic growth, and unemployment. Unemployment is emerged from the imbalance between the endogenous labor supply and the firms' labor demand under binding the minimum wage policy. The north produces two goods, high-tech good and low-tech good, while the South produces only low-tech good by the scarcity of technology. Both goods are traded between the countries. The production of the high-tech good needs R&D activity for variety creation, which is a source of economic growth. In this setting, we analyze the southern policy change that increases the southern minimum wage, and show that the increase in the southern minimum wage affects the structure of international trade and the northern growth rate and unemployment.

Suggested Citation

  • Chihiro Inaba & Katsufumi Fukuda, 2015. "Effects on the Cross-Country Difference in the Minimum Wage on International Trade, Growth and Unemployment," Discussion Paper Series DP2015-29, Research Institute for Economics & Business Administration, Kobe University.
  • Handle: RePEc:kob:dpaper:dp2015-29
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    File URL: http://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2015-29.pdf
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    References listed on IDEAS

    as
    1. Nicholas Bloom & Mirko Draca & John Van Reenen, 2016. "Trade Induced Technical Change? The Impact of Chinese Imports on Innovation, IT and Productivity," Review of Economic Studies, Oxford University Press, vol. 83(1), pages 87-117.
    2. Hartmut Egger & Peter Egger & James R. Markusen, 2012. "International Welfare And Employment Linkages Arising From Minimum Wages," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(3), pages 771-790, August.
    3. Nicholas Bloom & Paul Romer & Stephen Terry & John Van Reenen, 2014. "Trapped Factors and China's Impact on Global Growth," CEP Discussion Papers dp1261, Centre for Economic Performance, LSE.
    4. David H. Autor & David Dorn & Gordon H. Hanson, 2013. "The China Syndrome: Local Labor Market Effects of Import Competition in the United States," American Economic Review, American Economic Association, vol. 103(6), pages 2121-2168, October.
    5. Tony Fang & Carl Lin, 2015. "Minimum wages and employment in China," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-30, December.
    6. Sener, Fuat, 2006. "Labor market rigidities and R&D-based growth in the global economy," Journal of Economic Dynamics and Control, Elsevier, vol. 30(5), pages 769-805, May.
    7. Wolf-Heimo Grieben, 2009. "Can Countries with Severe Labor Market Frictions Gain from Globalization?," Review of Development Economics, Wiley Blackwell, vol. 13(2), pages 230-247, May.
    8. Jing Wang & Morley Gunderson, 2011. "Minimum Wage Impacts In China: Estimates From A Prespecified Research Design, 2000–2007," Contemporary Economic Policy, Western Economic Association International, vol. 29(3), pages 392-406, July.
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