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Dynamic Effects of Minimum Wage on Growth and Innovation in a Schumpeterian Economy

Author

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  • Chu, Angus C.
  • Kou, Zonglai
  • Wang, Xilin

Abstract

We explore the dynamic effects of minimum wage in a Schumpeterian model with endogenous market structure and obtain the following results. First, raising the minimum wage decreases the employment of low-skill workers and increases the unemployment rate. Second, it decreases the level of output. Third, it decreases the transitional growth rate of output but does not affect the steady-state growth rate. Our quantitative analysis shows that the magnitude of the negative effects of minimum wage is sharply increasing in low-skill labor intensity in production and that employed low-skill workers gain initially but might suffer from slower growth in future wages.

Suggested Citation

  • Chu, Angus C. & Kou, Zonglai & Wang, Xilin, 2019. "Dynamic Effects of Minimum Wage on Growth and Innovation in a Schumpeterian Economy," MPRA Paper 94822, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:94822
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    Cited by:

    1. Diana Alessandrini & Joniada Milla, 2024. "Minimum-Wage Effects on Human Capital Accumulation: Evidence from Canadian Data," Journal of Human Capital, University of Chicago Press, vol. 18(2), pages 346-376.
    2. Chu, Angus C. & Cozzi, Guido & Furukawa, Yuichi & Liao, Chih-Hsing, 2019. "Effects of Minimum Wage on Automation and Innovation in a Schumpeterian Economy," MPRA Paper 95824, University Library of Munich, Germany.
    3. Angus C. Chu & Haichao Fan & Yuichi Furukawa & Zonglai Kou & Xueyue Liu, 2021. "Minimum Wages, Import Status, And Firms' Innovation: Theory And Evidence From China," Economic Inquiry, Western Economic Association International, vol. 59(1), pages 441-458, January.
    4. Chen, Feng-Wen & Xu, Jingwei & Wang, Jiang & Li, Zhilong & Wu, Yongqiu, 2023. "Do rising labour costs promote technology upgrading? A novel theoretical hypothesis of an inverted U-shaped relationship," Structural Change and Economic Dynamics, Elsevier, vol. 66(C), pages 327-341.
    5. Artur Sikora, 2021. "The minimum wage in Poland and its connection to unemployment: Evaluating causality," Zeszyty Naukowe Małopolskiej Wyższej Szkoły Ekonomicznej w Tarnowie / The Malopolska School of Economics in Tarnow Research Papers Collection, Malopolska School of Economics in Tarnow, vol. 50(2), pages 65-77, June.
    6. Chu, Angus C. & Furukawa, Yuichi & Kou, Zonglai & Liu, Xueyue, 2019. "Effects of Minimum Wage on Import and Innovation: Theory and Evidence from China," MPRA Paper 97008, University Library of Munich, Germany.

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    More about this item

    Keywords

    minimum wage; unemployment; innovation; endogenous market structure;
    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
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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