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On economic growth and minimum wages

  • Luciano Fanti
  • Luca Gori

We offer an analysis of the existence of a positive relationship between minimum wages and economic growth in a fairly standard general equilibrium, one-sector, two-period overlapping generations model, where the usual Romer-typed knowledge spill-over mechanism in production represents the engine of endogenous growth. It is shown that – contrary to the conventional view which has failed to pay due attention to dynamic contexts with labour market rigidities – the minimum-wage economy may grow faster than the competitive-wage economy in spite of a reduced employment rate and, in particular, a growth-maximising minimum wage does exist. A straightforward message is therefore that policymakers may appropriately use minimum wage policies to promote economic growth and individuals’ welfare.

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Paper provided by Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy in its series Discussion Papers with number 2009/78.

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Date of creation: 01 Jan 2009
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Handle: RePEc:pie:dsedps:2009/78
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