A Minimum-Wage Model of Unemployment and Growth: The Case of a Backward-Bending Demand Curve for Labor

Richard Brecher and Till Gross ()

No 14-05, Carleton Economic Papers from Carleton University, Department of Economics

Abstract: We add a minimum wage and hence involuntary unemployment to a conventional two-sector model of a perfectly competitive economy with optimal saving and endogenous growth. Our resulting model highlights the possible case of a backward-bending demand curve for labor, along which a hike in the minimum wage might increase total employment. This possibility provides theoretical support for some controversial empirical studies, which challenge the textbook prediction of an inverse relationship between employment and the minimum wage. Our model also implies that a minimum-wage hike has negative implications for both the growth rate and lifetime utility.

Keywords: Optimal growth; Minimum wage; Learning by doing; Involuntary unemployment (search for similar items in EconPapers)
JEL-codes: E24 O41 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2014-07-03
New Economics Papers: this item is included in nep-dge, nep-lab and nep-mac
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Citations: View citations in EconPapers (4)

Published: Carleton Economic Papers

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Related works:
Journal Article: A minimum‐wage model of unemployment and growth: The case of a backward‐bending demand curve for labor (2019)
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