The effects of wage compression on unemployment and on the intersectoral distribution of employment: a dynamic model |
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| Institution: | 1. Department of Chemistry, Faculty of Science, Imam Khomeini International University, 34148-96818 Qazvin, Iran;2. National Institute of Materials Physics, P.O. Box MG-7, Bucharest-Magurele 077125, Romania;3. Faculty of Chemistry, University of Wroclaw, Joliot-Curie 14, Wroclaw 50-383, Poland;1. Institute of Laboratory Medicine, Clinical Chemistry and Pathobiochemistry, Campus Virchow Clinic, Charité-University Medicine, Berlin, Germany;2. Institute of Edible fungi, Shanghai Academy of Agricultural Sciences, PR China;1. Department of Pediatrics, School of Medicine, Iwate Medical University, Japan;2. Department of Clinical Genetics, School of Medicine, Iwate Medical University, Japan;3. Department of Pediatrics, Keio University School of Medicine, Tokyo, Japan;4. Department of Center for Medical Genetics, Keio University School of Medicine, Tokyo, Japan;1. Department of Organization, Management and Human Resources, ESSCA School of Management, Budapest, Hungary;2. Institute of International Business, National Cheng Kung University, Tainan, Taiwan;1. Michigan Technological University, 1400 Townsend Ave, Houghton, MI 49931, United States;2. Keweenaw Bay Indian Community Natural Resources Department, 14359 Pequaming Rd, L’Anse, MI 49946, United States;1. Institute of Economic Policy, Universita'' Cattolica del Sacro Cuore Via Ludovico Necchi, 5 20123, Milan, Italy;2. Institute of Economics, Scuola Superiore Sant’Anna, Piazza Martiri della Liberta’ 33, I-56127, Pisa, Italy |
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| Abstract: | A two-sector economy is modeled in a dynamic general equilibrium framework. If the steady state emerging in the absence of a minimum wage exhibits unemployment, the imposition of a binding wage floor lowers employment in the service sector without affecting employment in manufacturing. The wage differential between the two sectors shrinks and the quality of the service improves, but unemployment increases. In contrast, if this steady state exhibits full employment, a binding (but relatively low) minimum wage may bring about a more egalitarian income distribution and upgrade the quality of jobs in the service sector, without creating unemployment. |
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