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 tradeoff 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 controversial thesis that capital's share is higher when growth is slower.

Additional Metadata
Keywords income distribution, minimum wage, optimal growth, unskilled unemployment
Persistent URL dx.doi.org/10.1111/ijet.12197
Journal International Journal of Economic Theory
Citation
Brecher, R.A, & Gross, T. (2018). Unemployment and income-distribution effects of economic growth: A minimum-wage analysis with optimal saving. International Journal of Economic Theory. doi:10.1111/ijet.12197