Minimum Wage, Public Investment, Economic Growth - Theoretical Economics Letters

TEL > Vol.3 No.5, October 2013

Minimum Wage, Public Investment, Economic Growth ()

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DOI: 10.4236/tel.2013.35048 6,249 Downloads 10,211 Views Citations

Author(s)

Minoru Watanabe

Affiliation(s)

Graduate School of Economics, Kobe University, Kobe, Japan.

ABSTRACT

This paper considers the relationship between economic growth and minimum wage. Minimum wage helps reduce poverty and maintain a minimum standard of living. However, it is also claimed that minimum wage has a negative effect on employment and GDP. This paper develops a simple two-period overlapping generation model with three economic policies, minimum wage, unemployment benefit, and public investment that improves labor productivity. The government imposes tax on firms to finance public capital and unemployment benefit under a balanced budget. We show that economic growth is promoted with an increase in minimum wage and the ratio of public investment to tax revenue.

KEYWORDS

Minimum Wage; Public Investment; Economic Growth

Share and Cite:

M. Watanabe, "Minimum Wage, Public Investment, Economic Growth," Theoretical Economics Letters, Vol. 3 No. 5, 2013, pp. 288-291. doi: 10.4236/tel.2013.35048.

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