Premium
Minimum Wage Legislation, Investment and Human Capital
Author(s) -
Cubitt Robin P.,
Heap Shaun P. Hargreaves
Publication year - 1999
Publication title -
scottish journal of political economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.4
H-Index - 46
eISSN - 1467-9485
pISSN - 0036-9292
DOI - 10.1111/1467-9485.00125
Subject(s) - economics , investment (military) , wage , welfare , outcome (game theory) , minimum wage , human capital , pareto principle , legislation , range (aeronautics) , general equilibrium theory , labour economics , microeconomics , market economy , operations management , politics , political science , law , materials science , composite material
A two period, general equilibrium, model is analysed in which agents foresee how the second period outcome is determined by the investment decisions which they make in the first period. These decisions concern the acquisition of human and physical capital. The paper considers the impact of a minimum wage in the second period. It shows that, in equilibrium, this policy increases both types of investment. There is a range of values of the minimum wage at which the increases in investment are obtained without any reduction in period 2 employment. This is welfare‐improving for a range of parameter values. Under very specific circumstances, the minimum wage achieves a Pareto efficient outcome.