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Economic Growth and Welfare in a Neoclassical Overlapping Generations Growth Model with Minimum Wages and Consumption Taxes
Author(s) -
Fanti Luciano,
Gori Luca
Publication year - 2010
Publication title -
labour
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.403
H-Index - 34
eISSN - 1467-9914
pISSN - 1121-7081
DOI - 10.1111/j.1467-9914.2010.00486.x
Subject(s) - economics , consumption (sociology) , unemployment , welfare , minimum wage , overlapping generations model , labour economics , growth model , wage , wage growth , efficiency wage , macroeconomics , market economy , social science , sociology
We examine the effects of minimum wages on both the long‐run per worker GDP and welfare in the textbook Diamond style overlapping generations economy. In addition, we assume the existence of unemployment benefits financed at a balanced budget with consumption taxes. Under suitable conditions, it is shown that a regulated‐wage economy with unemployment performs better than a competitive‐wage economy with full employment in the long run. Moreover, a welfare‐maximizing minimum wage exists. Our findings may have interesting policy implications.