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Unemployment and income‐distribution effects of economic growth: A minimum‐wage analysis with optimal saving

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  • Richard A. Brecher
  • Till Gross

Abstract

Theoretically and numerically, we analyze the unemployment and income‐distribution effects of economic growth, in a model with optimal saving (investment) and a minimum wage for unskilled labor. Within this three‐factor model (including skilled labor), an exogenous rise in the growth rate increases unemployment if capital and unskilled labor are complements (versus substitutes), implying a tradeoff between (faster) growth and (lower) unemployment. We also show how the growth rate affects the skill premium and factor shares of national income, providing little support for Piketty's controversial thesis that capital's share is higher when growth is slower.

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  • Richard A. Brecher & Till Gross, 2020. "Unemployment and income‐distribution effects of economic growth: A minimum‐wage analysis with optimal saving," International Journal of Economic Theory, The International Society for Economic Theory, vol. 16(3), pages 243-259, September.
    • Handle: RePEc:bla:ijethy:v:16:y:2020:i:3:p:243-259
    DOI: 10.1111/ijet.12197
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    1. Jiménez Martínez, Mónica & Jiménez Martínez, Maribel, 2021. "Are the effects of minimum wage on the labour market the same across countries? A meta-analysis spanning a century," Economic Systems, Elsevier, vol. 45(1).

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    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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