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Minimum Wage Legislation and Economic Growth: Channels and Effects

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  • Mo, Pak Hung

Abstract

Despite decades of experience and research, the effects of minimum wage legislation (MWL) on long-run economic performance have rarely been studied since Stigler’s (1946) classic exposition about the shortcomings of MWL. In this study, we use a novel method to estimate the magnitude and transmission channels by which MWL affect productivity and GDP growth. Our results suggest that countries with MWL have a growth rate of about 20 to 30 percent lower than the sample mean. Although the initial impacts are small, in the ‘steady state’ where the marginal effect of the legislation years equals zero, a country will have a growth rate of about 30 to 38 percent lower than the average.

Suggested Citation

  • Mo, Pak Hung, 2011. "Minimum Wage Legislation and Economic Growth: Channels and Effects," MPRA Paper 35820, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:35820
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    File URL: https://mpra.ub.uni-muenchen.de/35820/1/MPRA_paper_35820.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    minimum wage; GDP growth; private investment; government size; government investment; population growth;
    All these keywords.

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • J58 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Public Policy
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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