Intended and Unintended Impacts of Minimum Wage Change: A Computable General Equilibrium Model Analysis with Cross-border Labor Mobility in the Philippines

Deborah Kim Sy and Nobuhiro Hosoe

No 333454, Conference papers from Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project

Abstract: Minimum wage is used as a support for low-wage workers, but it is expected to increase unemployment and cause deterioration of the welfare of the unemployed. While earlier studies identify negative side effects of minimum wage, that may not be the case in the Philippines, where many workers migrate and send home large remittances. This study uses a computable general equilibrium model to examine the impacts of an increase in the domestic minimum wage on unemployment, migration, and output, as well as on welfare and inequality, in the Philippines. Our simulation results show that a minimum wage increase would indeed reduce domestic labor demand and prompt many unemployed workers to migrate out, leaving relatively few unemployed at home. While an increased volume of remittances would improve household welfare, it would also have some unintended effects, such as currency appreciation; decreased domestic production in labor-intensive and export-oriented industries; greater income disparity; and tax base erosion.

Keywords: Labor and Human Capital; Agricultural and Food Policy (search for similar items in EconPapers)
Pages: 41
Date: 2022
New Economics Papers: this item is included in nep-int and nep-sea
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