Unemployment and Income-Distribution Effects of Economic Growth: A Minimum-Wage Analysis with Optimal Saving
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 trade-off 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 (2014) controversial thesis that capital’s share is higher when growth is slower.
|Keywords||Optimal growth, Minimum wage, Unskilled unemployment, Income distribution|
|JEL||Employment; Unemployment; Wages (jel E24), One, Two, and Multisector Growth Models (jel O41)|
|Publisher||Department of Economics|
|Series||Carleton Economic Papers (CEP)|
|Note||Revised 14 July 2017|
Brecher, R.A, & Gross, T. (2017). Unemployment and Income-Distribution Effects of Economic Growth: A Minimum-Wage Analysis with Optimal Saving (No. CEP 17-08). Carleton Economic Papers (CEP). Department of Economics.