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Employment gains from minimum†wage hikes under perfect competition: A simple general†equilibrium analysis

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  • Richard A. Brecher
  • Till Gross

Abstract

Contrary to conventional wisdom, higher minimum wages may lead to greater levels of employment under perfect competition. We demonstrate this possibility in a simple general†equilibrium model of involuntary unemployment, with two goods produced by two factors and consumed by two representative households. Within our model, hiking a minimum wage redistributes income between heterogeneous consumers. This redistribution may create an excess demand for the labor†intensive good, and hence increase total employment to restore equilibrium, despite the fact that every firm becomes less labor intensive.

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  • Richard A. Brecher & Till Gross, 2018. "Employment gains from minimum†wage hikes under perfect competition: A simple general†equilibrium analysis," Review of International Economics, Wiley Blackwell, vol. 26(1), pages 165-170, February.
    • Handle: RePEc:bla:reviec:v:26:y:2018:i:1:p:165-170
    DOI: 10.1111/roie.12322
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    References listed on IDEAS

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    Cited by:

    1. Chi‐Chur Chao & Mong Shan Ee & Xuan Nguyen & Eden S. H. Yu, 2022. "Minimum wage, firm dynamics, and wage inequality: Theory and evidence​," International Journal of Economic Theory, The International Society for Economic Theory, vol. 18(3), pages 247-271, September.
    2. Cristian Valeriu Paun & Radu Nechita & Alexandru Patruti & Mihai Vladimir Topan, 2021. "The Impact of the Minimum Wage on Employment: An EU Panel Data Analysis," Sustainability, MDPI, vol. 13(16), pages 1-17, August.
    3. Jiancai Pi & Shuxi Duan, 2023. "Appropriation, migration, and unemployment," Australian Economic Papers, Wiley Blackwell, vol. 62(3), pages 430-456, September.

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