The macroeconomic effects of the wage gap between regular and non-regular employment and of minimum wages

Hiroaki Sasaki, Jun Matsuyama and Kazumitsu Sako

Structural Change and Economic Dynamics, 2013, vol. 26, issue C, 61-72

Abstract: We develop a disequilibrium macrodynamic model in which two types of labor (regular and non-regular employment) are incorporated. We analyze how the expansion of the wage gap between regular and non-regular employment affects the economy. If the steady state equilibrium exhibits the wage-led demand regime, an increase in the wage gap does not affect the stability of equilibrium. In this case, the size of the reserve army effect affects the stability of the equilibrium. If the reserve army effect is strong, the steady state equilibrium is unstable. On the other hand, if the steady state equilibrium exhibits the profit-led demand regime, an increase in the wage gap destabilizes the equilibrium. It is possible that depending on conditions, an increase in the wage gap produces endogenous and perpetual business cycles. The introduction of the minimum wage is desirable in that it mitigates business cycle fluctuations. However, the introduction of an inappropriate minimum wage policy leads to a real wage and an employment rate that are lower than the steady state values.

Keywords: Wage gap; Regular and non-regular employment; Minimum wage; Demand-led growth model (search for similar items in EconPapers)
JEL-codes: E12 E24 E25 E32 J31 J83 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Working Paper: The Macroeconomic Effects of the Wage Gap between Regular and Non-Regular Employment and Minimum Wages (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:streco:v:26:y:2013:i:c:p:61-72

DOI: 10.1016/j.strueco.2013.06.001

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