Working Paper: CEPR ID: DP3286
Authors: Andreas Irmen; Berthold Wigger
Abstract: How do national minimum wages affect global economic growth? We address this question in a two-country endogenous growth model with capital mobility that emphasizes a link between wages, savings and growth. We identify the conditions on technology and national preferences that determine whether national minimum wages are a stimulus or an obstacle to growth. Technology matters because it determines the functional distribution of global income as well as output effects associated with the emergence of national unemployment due to minimum wages. Interestingly, differences in national savings propensities do not only affect the strength of the growth effect associated with minimum wages but may even determine its direction.
Keywords: Capital Mobility; Endogenous Technical Change; Minimum Wages; Unemployment
JEL Codes: E24; F21; O41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Binding minimum wage in Europe (J38) | Unemployment in Europe (J64) |
| Unemployment in Europe (J64) | Productivity of capital in Europe (O52) |
| Productivity of capital in Europe (O52) | Capital outflow to the US (F21) |
| Capital outflow to the US (F21) | Wages in the US (J31) |
| Binding minimum wage in Europe (J38) | Economic growth in Europe (O52) |
| Binding minimum wage in Europe (J38) | Economic growth in the US (N12) |
| European minimum wage policies (J38) | Global capital accumulation (P12) |
| Technological parameters and saving propensities (E21) | Effect of European minimum wage policies on global capital accumulation (F62) |
| Minimum wage policies (J38) | Global per capita income growth (F62) |