2018-02-01
Employment gains from minimum-wage hikes under perfect competition: A simple general-equilibrium analysis
Publication
Publication
Review of International Economics , Volume 26 - Issue 1 p. 165- 170
Contrary to conventional wisdom, higher minimum wages may lead to greater levels of employment under perfect competition. We demonstrate this possibility in a simple general-equilibrium model of involuntary unemployment, with two goods produced by two factors and consumed by two representative households. Within our model, hiking a minimum wage redistributes income between heterogeneous consumers. This redistribution may create an excess demand for the labor-intensive good, and hence increase total employment to restore equilibrium, despite the fact that every firm becomes less labor intensive.
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doi.org/10.1111/roie.12322 | |
Review of International Economics | |
Organisation | Department of Economics |
Brecher, R.A, & Gross, T. (2018). Employment gains from minimum-wage hikes under perfect competition: A simple general-equilibrium analysis. Review of International Economics, 26(1), 165–170. doi:10.1111/roie.12322
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