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Minimum Wage Legislation, Investment and Human Capital

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  • Robin P. Cubitt
  • Shaun P. Hargreaves Heap

Abstract

A two period, general equilibrium, model is analysed in which agents foresee how the second period outcome is determined by the investment decisions which they make in the first period. These decisions concern the acquisition of human and physical capital. The paper considers the impact of a minimum wage in the second period. It shows that, in equilibrium, this policy increases both types of investment. There is a range of values of the minimum wage at which the increases in investment are obtained without any reduction in period 2 employment. This is welfare‐improving for a range of parameter values. Under very specific circumstances, the minimum wage achieves a Pareto efficient outcome.

Suggested Citation

  • Robin P. Cubitt & Shaun P. Hargreaves Heap, 1999. "Minimum Wage Legislation, Investment and Human Capital," Scottish Journal of Political Economy, Scottish Economic Society, vol. 46(2), pages 135-157, May.
    • Handle: RePEc:bla:scotjp:v:46:y:1999:i:2:p:135-157
    DOI: 10.1111/1467-9485.00125
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    Cited by:

    1. Eggert, Wolfgang & Krieger, Tim & Meier, Volker, 2010. "Education, unemployment and migration," Journal of Public Economics, Elsevier, vol. 94(5-6), pages 354-362, June.
    2. Volker Meier, 2004. "Economic Consequences Of The Posted Workers Directive," Metroeconomica, Wiley Blackwell, vol. 55(4), pages 409-431, November.
    3. Kamila Fialová & Martina Mysíková, 2009. "The Minimum Wage: Labor Market Consequences in the Czech Republic," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 59(3), pages 255-274, August.
    4. P R Agénor, 2005. "The Analytics of Segmented Labor Markets," Centre for Growth and Business Cycle Research Discussion Paper Series 52, Economics, The University of Manchester.
    5. Vink, N & Tregurtha, N, 2003. "A Theoretical Perspective On A Minimum Wage In South African Agriculture," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 42(1).
    6. Du, Pengcheng & Wang, Shuxun, 2020. "The effect of minimum wage on firm markup: Evidence from China," Economic Modelling, Elsevier, vol. 86(C), pages 241-250.
    7. Murray, Justin & van Walbeek, Corne, 2007. "Impact of the Sectoral Determination for Farm Workers on the South African Sugar Industry: Case Study of the KwaZulu-Natal North and South Coasts," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 46(1), pages 1-19, March.
    8. Lartigue-Mendoza, Jacques & Domínguez, Salomón, 2021. "The Effect of Wages on Human Capital Investment," EconStor Preprints 246818, ZBW - Leibniz Information Centre for Economics.

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