Minimum Wage, Public Investment, Economic Growth

Minoru Watanabe

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

DOI: 10.4236/tel.[phone]                

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

Conflicts of Interest

The authors declare no conflicts of interest.

References

[1]	P. Cahuc and P. Michel, “Minimum Wage Unemployment and Growth,” European Economic Review, Vol. 40, No. 7, 1996, pp. 1463-1482. http://dx.doi.org/10.1016/0014-2921(95)00035-6
[2]	M. Ravn and J. Sorensen, “Schooling, Training, Growth and Minimum Wages,” Scandinavian Journal of Economics, Vol. 101, No. 3, 1999, pp. 441-457. http://dx.doi.org/10.1111/1467-9442.00165
[3]	P. Askenazy, “Minimum Wage, Exports and Growth,” European Economic Review, Vol. 47, No. 1, 2003, pp. 147-164. http://dx.doi.org/10.1016/S0014-2921(02)00187-3
[4]	A. Irmen and B. Wigger, “National Minimum Wages, Capital Mobility and Global Economic Growth,” Economics Letters, Vol. 90, No. 2, 2006, pp. 285-289. http://dx.doi.org/10.1016/j.econlet.2005.08.011
[5]	T. Tamai “Inequality, Unemployment, and Endogenous Growth in a Political Economy with a Minimum Wage,” Journal of Economics, Vol. 97, No. 3, 2009, pp. 217-232. http://dx.doi.org/10.1007/s00712-009-0059-x
[6]	L. Fanti and L. Gori, “On Economic Growth and Mini-mum Wages,” Journal of Economics, Vol. 103, No. 1, 2011, pp. 59-82. http://dx.doi.org/10.1007/s00712-011-0190-3
[7]	R. J. Barro, “Government Spending in a Simple Model of Endogenous Growth,” Journal of Political Economy, Vol. 98, No. 1, 1990, pp. S103-S125. http://dx.doi.org/10.1086/261726
[8]	K. Futagami, Y. Morita and A. Shibata, “Dynamic Analysis of an Endogenous Growth Model with Public Capital,” Scandinavian Journal of Economics, Vol. 95, No. 4, 1993, pp. 606-625. http://dx.doi.org/10.2307/3440914
[9]	G. Glomm and B. Ravikumar, “Productive Government Expenditure and Long-Run Growth,” Journal of Economic Dynamics and Control, Vol. 21, No. 1, 1997, pp. 183-204. http://dx.doi.org/10.1016/0165-1889(95)00929-9
[10]	A. Yakita, “Aging and Public Capital Accumulation,” International Tax and Public Finance, Vol. 15, No. 5, 2008, pp. 582-598. http://dx.doi.org/10.1007/s10797-007-9041-0