On the Long-Run Growth Effects of a Minimum Wage for a Two-Sector Economy*

This paper investigates the effect of (nationally enforced) minimum wage regulation on economic growth using the standard two-sector model. The paper shows, inter alia. that the minimum wage regulation (if it is effective) always lowers the rate of growth by inducing over-capitalization in the economy, and that a minimum wage poor which is sufficiently high causes the economy to decay continually. A diagrammatical exposition of some of the results is also provided.     

Minimum Wage Compliance and the Labor Demand Curve

Contrary to the traditional analysis of the employment effects of the minimum wage setting, the author shows that if compliance is contingent upon enforcement, complying with the minimum wage law involves a leftward shift of the labor demand curve rather than an upward movement along the curve. Furthermore, the labor demand curve will shift leftward with enforcement even if enforcement is insufficient to ensure compliance, becoming vertical when the options of compliance and noncompliance are equally attractive. Hence, it is not paying the statutory minimum wage that brings about a reduction in employment down to the full-compliance level but enforcement that, if sufficiently high, induces that same reduction in employment, even if the employer is still noncomplying with the minimum wage law.     

On the optimality of a minimum wage: New insights from optimal tax theory

We build a theoretical model to study whether a minimum wage can be welfare-improving if it is implemented in conjunction with an optimized nonlinear income tax. We consider this issue in a framework where search frictions on the labor market generate unemployment. Workers differ in productivity. The government does not observe workers' productivity but only their wages. Hence, the redistributive policy solves an adverse selection problem. We show that a minimum wage is optimal if the bargaining power of the workers is relatively low. However, if the government controls the bargaining power, then it is preferable to set a sufficiently high bargaining power.     

The optimal minimum wage with regulatory uncertainty

For two different regulatory standards, we examine the optimal minimum wage in a competitive labor market when the government is uncertain about supply and demand. Solutions are related to underlying supply and demand conditions, and to the extent of uncertainty and of rationing efficiency. With expected earnings maximization, greater uncertainty widens the range of parameter values for which a minimum wage should be set. With expected worker surplus maximization and sufficiently efficient rationing, a minimum wage should always be set. However, in both cases regulatory uncertainty may require a low minimum wage that may not bind in equilibrium.     

最低工资对中国就业和工资水平的影响

本文以1998—2007年全国各市(地区、自治州、盟)最低工资标准随时间变化的外生差异来识别最低工资上涨与企业平均工资、企业雇佣人数的关系。利用1998—2007年规模以上制造业企业报表数据进行的分析显示,最低工资每上涨10%,制造业企业平均工资将整体上涨0.4%—0.5%。借助2006—2007年福建省最低工资上涨的"准自然实验"本文也证实了该结论。对于不同行业、不同人均资本水平的企业,最低工资上涨的影响也存在异质性。最低工资将更多地增加劳动密集型或人均资本较低企业的平均工资。研究还发现,最低工资每增加10%,制造业企业雇佣人数将显著减少0.6%左右。政府在制定最低工资时应权衡其在收入分配上的积极效果以及其对就业的负面影响。     

Multiple Equilibria and Minimum Wages in Labor Markets with Informational Frictions and Heterogeneous Production Technologies*

It is often argued that a mandatory minimum wage is binding only if the wage density displays a spike at it. In this article, we analyze a model with search frictions and heterogeneous production technologies, in which imposition of a minimum wage affects wages even though, after imposition, the lowest wage in the market exceeds the minimum wage. The model has multiple equilibria as a result of the fact that the reservation wage of the unemployed and the lowest production technology in use affect each other. Imposition of a minimum wage may improve social welfare.     

The effects of the minimum wage in Brazil on the distribution of family incomes: 1996–2001

The Brazilian economy has long relied on the minimum wage, having first implemented a minimum in 1940. Shortly after taking office in 2003, Brazil's President raised the minimum wage by 20% and promised to double the value of the minimum wage before his term ends in 2006. The usual rationale for minimum wage increases is to bring about beneficial changes in the income distribution, by raising incomes of poor and low-income families. The goal of this paper is to evaluate the efficacy of the minimum wage in Brazil in bringing about these changes in the income distribution. We examine data drawn from Brazil's major metropolitan areas, studying the years after Brazil's hyper-inflation ended. The estimates provide no evidence that minimum wages in Brazil lift family incomes at the lower points of the income distribution; if anything some of the evidence points to adverse effects on lower-income families.     

Conditional Earnings Subsidies for Low Earners

In order to be eligible for in-work tax credits, it is often not enough to have low earnings. In Ireland, New Zeand the United Kingdom, for example, for eligibility, it is also required that the number of hours worked is sufficiently high. Similarly, in Belgium and France, the hourly wage rate must be sufficiently low. In this paper, I provide a justification for such additional conditions. I analyze Pareto-efficient redistribution from high to low ability individuals in a model where labor has several intensive margins. Besides labor hours, labor effort – a vector of unpleasant, but productive features of labor – is also an object of choice. Effort and ability determine the hourly wage rate. I find that conditional subsidies on earnings for low earners are optimal: the earnings of low earners should be subsidized at the margin, but only if they earn more by working more hours at a sufficiently low wage rate.     

TAXATION AND CENTRALISED WAGE SETTING: THE CASE OF ENDOGENOUS LABOUR SUPPLY

The implications of centralised wage setting for the relationship between taxation, wages and employment are studied allowing for endogenous adjustment in work hours. We show that centralisation promotes wage moderation, makes wages and employment less sensitive to changes in wage taxation and reduces the hours worked. With an individual supply of working hours, a wage tax can even improve employment if wage setting is centralised and marginal utility from a public good is sufficiently high. Moreover, if a profit tax is used to finance public expenditure, higher tax reduces wages and improves employment.     

The Intriguing Relation Between Adult Minimum Wage and Child Labour

Because most parents send their children to work when compelled by poverty, one would expect a rise in adult wage to lower child labour. However, if the rise in wage is achieved by a minimum wage law, its impact can be intriguing. It can, for instance, cause some adults to be unemployed and send their children to work, which in turn displaces more adult labour and sends more children to work. The paper solves this process and predicts the incidence of child labour. It shows that, for appropriate parametric configurations, child labour may fall or rise as the adult minimum wage is raised.     

C.E.S. production functions in the light of the Cambridge critique

The Cambridge debate of the 1960s showed conclusively that the aggregation of capital, so as to obtain a surrogate production function according to Samuelson, is not possible in general, with critical implications also for other variants of neoclassical theory. The framework for the demonstration is that of linear activity analysis.There is an individual wage curve in function of the rate of profit for each technique. If these individual wage curves were straight lines, their envelope would define a wage curve resulting from all techniques, from which a surrogate production function could be derived, but all wage curves are straight only, if there is only one industry. And if wage curves are not straight, phenomena such as reswitching show that essential neoclassical hypotheses need not hold. A recent empirical investigation by Han and Schefold has found one empirical example for reswitching and several for reverse capital deepening.A rigorous derivation of surrogate production functions thus is ruled out also on empirical grounds, but the paradoxes seem not to be as frequent as the critics once thought, so that the question arises whether approximate surrogate production functions could be derived, with individual wage curves which would be sufficiently linear to construct approximate surrogate production functions, indicating a relationship between the intensity of capital and output per head which would be sufficiently precise to work with.The paper is part of a wider investigation, in which conditions for the existence of quasi-linear wage curves and the possibility of the construction of approximate surrogate production functions are given. The emphasis here is on the special hypotheses needed to obtain C.E.S. production functions.     

WELFARE COSTS OF SHIFTING TREND INFLATION: STAGGERED WAGE AND PRICE CONTRACTS

We develop a New Keynesian model featuring staggered price and wage contracts to study welfare costs of exogenous variations in trend inflation. The analyses show that the consequences of constant positive trend inflation and shifting trend inflation are severe, especially when trend inflation is high. Among two channels, staggered wage contracts play a vital role in transmitting adverse impacts of constant and shifting trend inflation into the economy. Without the staggered wage channel, these costs are modest. We also conduct exercises to examine the sensitivity of welfare costs to a wide range of plausible parameters. The results show that if the price and wage friction are sufficiently large, the price and wage indexation level are sufficiently small, or there is upward biased trend inflation process, the welfare costs become larger.     

Competing to Outsource in the South

This paper analyzes foreign direct investment (FDI) competition in a three‐country framework: two Northern countries and one Southern country. We have in mind the competition of Airbus and Boeing in a developing country. The host‐country government endogenizes tariffs, while Airbus and Boeing choose domestic output and FDI. Wages and employment in the home countries are negotiated. We find that in the unique equilibrium, both Airbus and Boeing compete to undertake FDI in the developing country. This arises because the host country can play off the multinationals, which in turn stems from three factors: (a) oligopolistic rivalry; (b) quid pro quo FDI; (c) strategic outsourcing—FDI drives down the union wages at home if the host‐country wage is sufficiently low. However, if the host‐country wage is sufficiently high, the union wage increases under FDI. In such cases, FDI competition benefits the multinationals, the labor unions, as well as the host country.     

Wages,selectivity, and vacancies: Evaluating the short-term and long-term impact of the minimum wage on unemployment

Using a circular matching model (Marimon R, Zilibotti F. Unemployment vs. mismatch of talents: Reconsidering unemployment benefits. Economic Journal 1999;109; 266–291), where the wage setting is similar to Weiss (Weiss A. Job queues and layoffs in labor markets with flexible wages. Journal of Political Economy 1980; 88; 526–538), we reexamine Card and Krueger's (Card, D., Krueger, A. Myth and Measurement, the New Economics of the Minimum Wage. Princeton University Press; 1995) intuition on the impact of the minimum wage on unemployment. In the short term, a rise in the minimum wage increases the employment level by making firms less selective. In the long term, numerical simulations show that, despite the reduction of job creation, introducing a minimum wage may lower unemployment as soon as workers and jobs are sufficiently differentiated. However, beyond some limit, the wage increase raises unemployment whatever the degree of differentiation is.     

The combination of two tragedies: commons and anticommons tragedies

This paper studies the relationship between social conflict and skilled–unskilled wage inequality through the three-sector general equilibrium approach. In the basic model without the urban unskilled minimum wage, we find that when the government enhances the degree of controlling social conflict, the skilled–unskilled wage inequality will be narrowed down (resp. widened) if the urban skilled sector is more capital intensive (resp. labor intensive) than the urban unskilled sector. The extended models address the issue under different economic structures or different types of social conflict. In the extended model with the urban unskilled minimum wage, we find that the skilled–unskilled inequality will be widened when the degree of controlling social conflict is increased. In other extended models, we find that the above obtained results are still robust.     

The heterogeneous regional effects of minimum wages in Poland

We evaluate the impact of large minimum wage hikes on employment and wage growth in Poland between 2004 and 2018. We estimate panel data models utilizing the considerable variation in wage levels, and in minimum wage bites, across 73 Polish NUTS 3 regions. We find that minimum wage hikes had a significant positive effect on wage growth and a significant negative effect on employment growth only in regions of Poland that were in the first tercile of the regional wage distribution in 2007. These effects were moderate in size, and appear to be more relevant for wages. Specifically, if the ratio of minimum wage to average wage had remained constant after 2007, by 2018, the average wages in these regions would have been 3.2% lower, while employment would have been 1.2% higher. In the remaining two-thirds of Polish regions, we find no significant effects of minimum wage hikes on average wages or on employment.     

Can Minimum Wages Raise Workers’ Incomes in the Long Run?

Using an intertemporal model of saving and capital accumulation with two types of agents we demonstrate that it is impossible for any binding minimum wage to increase the after‐tax incomes of workers if the production function is Cobb–Douglas with constant returns to scale, or if there are no differences in ability among workers. Moreover, it is impossible to increase the incomes of employed workers through minimum wage legislation, even under decreasing returns to scale and heterogeneity of ability among workers, unless the support provided to unemployed workers is far below what they would earn in the absence of minimum wages.     

Minimum wage spillover effects and social welfare in a model of stochastic job matching

In this paper, I carry out a welfare analysis of the minimum wage in the framework of a Diamond–Mortensen–Pissarides model with stochastic job matching. I explore the role of the minimum wage in a labor market with trading externalities and present the necessary and sufficient condition for a minimum wage hike to be efficiency enhancing. In this context, I characterize minimum wage spillover effects and demonstrate that there is a direct link between the welfare effects and spillover effects of a minimum wage. This theoretical finding suggests that the welfare impact of minimum wage changes can be inferred from the empirical observation of spillover effects on the wage distribution.     

MINIMUM WAGE HIKES AND THE WAGE GROWTH OF LOW‐WAGE WORKERS

This paper presents difference‐in‐differences estimates of the impact of the British minimum wage on the wage growth of low‐wage employees. Estimates of the probability of low‐wage employees receiving positive wage growth have been significantly increased by the minimum wage upratings or hikes. However, whether the actual wage growth of these workers has been significantly raised or not depends crucially on the magnitude of the minimum wage hike considered. Findings are consistent with employers complying with the legally binding minimum wage but holding down or offsetting the wage growth that they might have awarded in periods of relatively low minimum wage hikes.     

Capital tax,minimum wage,and labor market outcomes

Often an increase in the minimum wage is accompanied by a reduction in the capital tax. This paper analyzes the effects of interactions between the minimum wage and the capital tax in the general equilibrium framework. The analysis is conducted in an inter-temporal search model in which firms post wages. A (binding) minimum wage provides a lower support for the distribution of wages. The paper finds that the interaction of these two policy instruments significantly modify labor market outcomes and welfare cost. In the presence of a binding minimum wage, a decrease in the capital tax leads to an increase in wage dispersion. In contrast, when it is not binding, a lower capital tax may reduce the dispersion in wages. A binding minimum wage magnifies the positive effects of a lower capital tax on labor supply, employment, and output. It also enhances the welfare cost of capital tax. A policy change which involves an increase in the minimum wage and a fall in the capital tax such that employment level remains constant increases welfare and output.