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Stagnation and minimum wage: Optimal minimum wage policy in macroeconomics

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  • Yamaguchi, Masao

Abstract

This paper argues how an increase in minimum wage affects employment, consumption, and social welfare with dynamic general equilibrium model without market frictions. The study demonstrates that a minimum wage hike reduces an actual unemployment rate and has positive effects on an employment rate under the demand-shortage economy whereas they do not under a non-demand shortage economy. The study also shows that optimal minimum wage which maximize social welfare and minimize an actual unemployment rate when the economy faces the demand-shortage initially. These findings imply that the minimum wage can be considered as one of the effective policy for overcoming deflation and stagnation although it increases the natural rate of unemployment.

Suggested Citation

  • Yamaguchi, Masao, 2017. "Stagnation and minimum wage: Optimal minimum wage policy in macroeconomics," MPRA Paper 80359, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:80359
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    File URL: https://mpra.ub.uni-muenchen.de/80359/8/MPRA_paper_80359.pdf
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    References listed on IDEAS

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    Cited by:

    1. Tomás Gómez Rodríguez & Humberto Ríos Bolívar & Ali Aali Bujari, 2018. "Salario eficiente y crecimiento económico para el caso de América Latina. (Efficient wages and Economic Growth in Latin America)," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(2), pages 213-235, October.

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    More about this item

    Keywords

    Minimum wage; Unemployment; Natural rate of unemployment; Deflation; Stagnation; Demand shortage; Dynamic general equilibrium model;
    All these keywords.

    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
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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