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.

Additional Metadata
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
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. Department of Economics.