Stagnation and minimum wage: Optimal minimum wage policy in macroeconomics
Masao Yamaguchi
MPRA Paper from University Library of Munich, Germany
Abstract:
This paper argues how an increase in minimum wage affects employment, consumption, and social welfare with dynamic general equilibrium model without market frictions. The study demonstrates that a minimum wage hike reduces an actual unemployment rate and has positive effects on an employment rate under the demand-shortage economy whereas they do not under a non-demand shortage economy. The study also shows that optimal minimum wage which maximize social welfare and minimize an actual unemployment rate when the economy faces the demand-shortage initially. These findings imply that the minimum wage can be considered as one of the effective policy for overcoming deflation and stagnation although it increases the natural rate of unemployment.
Keywords: Minimum wage; Unemployment; Natural rate of unemployment; Deflation; Stagnation; Demand shortage; Dynamic general equilibrium model (search for similar items in EconPapers)
JEL-codes: E24 E31 J38 (search for similar items in EconPapers)
Date: 2017-08-03
New Economics Papers: this item is included in nep-dge, nep-lma and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:80359
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