Minimum Wage, Trade and Unemployment in General Equilibrium

Sugata Marjit, Shrimoyee Ganguly and Rajat Acharyya

No 8090, CESifo Working Paper Series from CESifo

Abstract: The path breaking work of Card and Krueger (1993), showing higher minimum wage can increase employment turned the age-old conventional wisdom on its head. This paper demonstrates that this apparently paradoxical result is perfectly plausible in a competitive general equilibrium production structure of a small open economy with a non-traded good, without taking any recourse to monopsony, spatial heterogeneity, heterogeneity of consumers etc. the usual theoretical drivers behind the result. Following Jones and Marjit (1992) we build up a simple general equilibrium model with complementary relationship in production and we show that higher minimum wage can raise aggregate employment. Expansion in the non-traded sector following a wage hike may be consistent with the overall expansion of the export sector in a multi good framework, an unlikely outcome in a conventional two good models which cannot accommodate complementary relationship in production.

Keywords: minimum wage; employment; non-traded good (search for similar items in EconPapers)
JEL-codes: F11 F16 J20 J30 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Journal Article: Minimum wage, trade and unemployment in general equilibrium (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_8090

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