[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/ioe/doctra/481.html
   My bibliography  Save this paper

The Macroeconomic Consequences of Raising the Minimum Wage: Capital Accumulation, Employment and the Wage Distribution

Author

Listed:
  • Alexandre Janiak
  • Sofía Bauducco
Abstract
We study the quantitative impact of a rise in the minimum wage on macroeconomic outcomes such as employment, the stock of capital and the distribution of wages. Our modeling framework is the large-firm search and matching model. Our comparative statics are in line with previous empirical findings: a moderate increase in the minimum wage barely affects employment, while it compresses the wage distribution and generates positive spillovers on higher wages. The model also predicts an increase in the stock of capital. Next, we perform the policy experiment of introducing a 10 dollar minimum wage. Our results suggest large positive effects on capital (4.0%) and output (1.8%), with a decrease in employment by 2.8%. The introduction of a 9 dollar minimum wage would instead produce similar effects on capital accumulation without harming employment.

Suggested Citation

  • Alexandre Janiak & Sofía Bauducco, 2017. "The Macroeconomic Consequences of Raising the Minimum Wage: Capital Accumulation, Employment and the Wage Distribution," Documentos de Trabajo 481, Instituto de Economia. Pontificia Universidad Católica de Chile..
    • Handle: RePEc:ioe:doctra:481
    as

    Download full text from publisher

    File URL: https://www.economia.uc.cl/docs/doctra/dt-481.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Cahuc, Pierre & Wasmer, Etienne, 2001. "Does Intrafirm Bargaining Matter In The Large Firm'S Matching Model?," Macroeconomic Dynamics, Cambridge University Press, vol. 5(5), pages 742-747, November.
    2. Marcus Hagedorn & Iourii Manovskii, 2008. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," American Economic Review, American Economic Association, vol. 98(4), pages 1692-1706, September.
    3. Card, David & Krueger, Alan B, 1994. "Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania," American Economic Review, American Economic Association, vol. 84(4), pages 772-793, September.
    4. David Card, 1992. "Do Minimum Wages Reduce Employment? A Case Study of California, 1987–89," ILR Review, Cornell University, ILR School, vol. 46(1), pages 38-54, October.
    5. Eric Smith, 1999. "Search, Concave Production, and Optimal Firm Size," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(2), pages 456-471, April.
    6. Pierre Cahuc & Francois Marque & Etienne Wasmer, 2008. "A Theory Of Wages And Labor Demand With Intra-Firm Bargaining And Matching Frictions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(3), pages 943-972, August.
    7. Machin, Stephen & Manning, Alan & Rahman, Lupin, 2002. "Where the minimum wage bites hard: the introduction of the UK national minimum wage to a low wage sector," LSE Research Online Documents on Economics 20070, London School of Economics and Political Science, LSE Library.
    8. Sofía Bauducco & Alexandre Janiak, 2015. "Can a non-binding minimum wage reduce wages and employment?," Documentos de Trabajo 308, Centro de Economía Aplicada, Universidad de Chile.
    9. Michael W. L. Elsby & Ryan Michaels, 2013. "Marginal Jobs, Heterogeneous Firms, and Unemployment Flows," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(1), pages 1-48, January.
    10. Monique Ebell & Christian Haefke, 2009. "Product Market Deregulation and the U.S. Employment Miracle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(3), pages 479-504, July.
    11. Costain, James S. & Reiter, Michael, 2008. "Business cycles, unemployment insurance, and the calibration of matching models," Journal of Economic Dynamics and Control, Elsevier, vol. 32(4), pages 1120-1155, April.
    12. Mark B. Stewart, 2004. "The employment effects of the national minimum wage," Economic Journal, Royal Economic Society, vol. 114(494), pages 110-116, March.
    13. David H. Autor & Alan Manning & Christopher L. Smith, 2016. "The Contribution of the Minimum Wage to US Wage Inequality over Three Decades: A Reassessment," American Economic Journal: Applied Economics, American Economic Association, vol. 8(1), pages 58-99, January.
    14. Robert E. Hall & Paul R. Milgrom, 2008. "The Limited Influence of Unemployment on the Wage Bargain," American Economic Review, American Economic Association, vol. 98(4), pages 1653-1674, September.
    15. Pereira, Sonia C., 2003. "The impact of minimum wages on youth employment in Portugal," European Economic Review, Elsevier, vol. 47(2), pages 229-244, April.
    16. Christopher J. Flinn, 2006. "Minimum Wage Effects on Labor Market Outcomes under Search, Matching, and Endogenous Contact Rates," Econometrica, Econometric Society, vol. 74(4), pages 1013-1062, July.
    17. Gabriel Felbermayr & Julien Prat, 2011. "Product Market Regulation, Firm Selection, And Unemployment," Journal of the European Economic Association, European Economic Association, vol. 9(2), pages 278-317, April.
    18. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
    19. Christopher A. Pissarides, 2009. "The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer?," Econometrica, Econometric Society, vol. 77(5), pages 1339-1369, September.
    20. Stole, Lars A & Zwiebel, Jeffrey, 1996. "Organizational Design and Technology Choice under Intrafirm Bargaining," American Economic Review, American Economic Association, vol. 86(1), pages 195-222, March.
    21. Lars A. Stole & Jeffrey Zwiebel, 1996. "Intra-firm Bargaining under Non-binding Contracts," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 63(3), pages 375-410.
    22. Kaas, Leo & Madden, Paul, 2008. "Holdup in oligopsonistic labour markets - a new role for the minimum wage," Labour Economics, Elsevier, vol. 15(3), pages 334-349, June.
    23. Acemoglu, Daron & Shimer, Robert, 1999. "Holdups and Efficiency with Search Frictions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 827-849, November.
    24. William Hawkins, 2015. "Bargaining with Commitment Between Workers and Large Firms," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(2), pages 350-364, April.
    25. Acemoglu, Daron, 2001. "Good Jobs versus Bad Jobs," Journal of Labor Economics, University of Chicago Press, vol. 19(1), pages 1-21, January.
    26. Janiak, Alexandre, 2013. "Structural unemployment and the costs of firm entry and exit," Labour Economics, Elsevier, vol. 23(C), pages 1-19.
    27. Stephen Machin & Alan Manning & Lupin Rahman, 2003. "Where the Minimum Wage Bites Hard: Introduction of Minimum Wages to a Low Wage Sector," Journal of the European Economic Association, MIT Press, vol. 1(1), pages 154-180, March.
    28. Ulrich Doraszelski & Jordi Jaumandreu, 2013. "R&D and Productivity: Estimating Endogenous Productivity," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 80(4), pages 1338-1383.
    29. Pissarides, Christopher A, 1985. "Short-run Equilibrium Dynamics of Unemployment Vacancies, and Real Wages," American Economic Review, American Economic Association, vol. 75(4), pages 676-690, September.
    30. David S. Lee, 1999. "Wage Inequality in the United States During the 1980s: Rising Dispersion or Falling Minimum Wage?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(3), pages 977-1023.
    31. , & , B., 2014. "Search with multi-worker firms," Theoretical Economics, Econometric Society, vol. 9(3), September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Marianna Kudlyak & Murat Tasci & Didem Tuzemen, 2019. "Minimum Wage Increases and Vacancies," Working Papers 19-30R, Federal Reserve Bank of Cleveland, revised 21 Apr 2022.
    2. Paul Redmond & Karina Doorley & Seamus McGuinness, 2021. "The impact of a minimum wage change on the distribution of wages and household income," Oxford Economic Papers, Oxford University Press, vol. 73(3), pages 1034-1056.
    3. Cristian Valeriu Paun & Radu Nechita & Alexandru Patruti & Mihai Vladimir Topan, 2021. "The Impact of the Minimum Wage on Employment: An EU Panel Data Analysis," Sustainability, MDPI, vol. 13(16), pages 1-17, August.
    4. Seok, Byoung Hoon & You, Hye Mi, 2022. "Macroeconomic impacts of increasing the minimum wage: The case of Korea," Economic Modelling, Elsevier, vol. 113(C).
    5. Zhao, Yueyang & Mao, Jinzhou, 2022. "Energy effects of non-energy policies: Minimum wage standard and enterprise energy efficiency in China," Resources Policy, Elsevier, vol. 79(C).
    6. Koch, Andreas & Kirchmann, Andrea & Reiner, Marcel & Scheu, Tobias & Zühlke, Anne & Bonin, Holger, 2020. "Verhaltensmuster von Betrieben und Beschäftigten im Kontext des gesetzlichen Mindestlohns," IZA Research Reports 97, Institute of Labor Economics (IZA).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sofía Bauducco & Alexandre Janiak, 2015. "The impact of the minimum wage on capital accumulation and employment in a large-firm framework," Documentos de Trabajo 309, Centro de Economía Aplicada, Universidad de Chile.
    2. Leo Kaas & Philipp Kircher, 2015. "Efficient Firm Dynamics in a Frictional Labor Market," American Economic Review, American Economic Association, vol. 105(10), pages 3030-3060, October.
    3. Alexandre Janiak, 2010. "Structural unemployment and the regulation of product market," Documentos de Trabajo 274, Centro de Economía Aplicada, Universidad de Chile.
    4. Dale Belman & Paul Wolfson & Kritkorn Nawakitphaitoon, 2015. "Who Is Affected by the Minimum Wage?," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 54(4), pages 582-621, October.
    5. Monique Ebell & Christian Haefke, 2009. "Product Market Deregulation and the U.S. Employment Miracle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(3), pages 479-504, July.
    6. Bjoern Bruegemann, 2023. "Invariance of Unemployment and Vacancy Dynamics with Respect to Diminishing Returns to Labor at the Firm Level," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 915-942, December.
    7. Janiak, Alexandre, 2013. "Structural unemployment and the costs of firm entry and exit," Labour Economics, Elsevier, vol. 23(C), pages 1-19.
    8. William Hawkins, 2015. "Bargaining with Commitment Between Workers and Large Firms," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(2), pages 350-364, April.
    9. repec:spo:wpmain:info:hdl:2441/3aom2mve1k829p8sp4h3vrpgkg is not listed on IDEAS
    10. Kim, Jiwoon, 2021. "Wage negotiations in multi-worker firms and stochastic bargaining powers of existing workers," Journal of Economic Dynamics and Control, Elsevier, vol. 123(C).
    11. Dossche, Maarten & Lewis, Vivien & Poilly, Céline, 2019. "Employment, hours and the welfare effects of intra-firm bargaining," Journal of Monetary Economics, Elsevier, vol. 104(C), pages 67-84.
    12. repec:hal:spmain:info:hdl:2441/3aom2mve1k829p8sp4h3vrpgkg is not listed on IDEAS
    13. William Hawkins, 2015. "Bargaining with Commitment Between Workers and Large Firms," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(2), pages 350-364, April.
    14. Alexandre Janiak & Etienne Wasmer, 2014. "Employment protection and capital-labor ratios," SciencePo Working papers hal-01061993, HAL.
    15. Alexandre Janiak & Jonathan Rojas Hepburn, 2023. "The Grasshopper, the Ant, and the Minimum Wage," Documentos de Trabajo 570, Instituto de Economia. Pontificia Universidad Católica de Chile..
    16. Arindrajit Dube & Attila Lindner, 2024. "Minimum Wages in the 21st Century," RF Berlin - CReAM Discussion Paper Series 2524, Rockwool Foundation Berlin (RF Berlin) - Centre for Research and Analysis of Migration (CReAM).
    17. repec:spo:wpmain:info:hdl:2441/2ennjqtovk8lvprrqlro5ni69v is not listed on IDEAS
    18. repec:hal:spmain:info:hdl:2441/2a53rsm0o89kn9vjs4dhjqnvn5 is not listed on IDEAS
    19. repec:hal:spmain:info:hdl:2441/2ennjqtovk8lvprrqlro5ni69v is not listed on IDEAS
    20. Faccini, Renato & Ortigueira, Salvador, 2010. "Labor-market volatility in the search-and-matching model: The role of investment-specific technology shocks," Journal of Economic Dynamics and Control, Elsevier, vol. 34(8), pages 1509-1527, August.
    21. repec:hal:wpspec:info:hdl:2441/2ennjqtovk8lvprrqlro5ni69v is not listed on IDEAS
    22. Bauer, Christian & Lingens, Jörg, 2010. "Individual vs. Collective Bargaining in the Large Firm Search Model," Discussion Papers in Economics 11315, University of Munich, Department of Economics.
    23. repec:spo:wpecon:info:hdl:2441/2ennjqtovk8lvprrqlro5ni69v is not listed on IDEAS
    24. Etienne Wasmer & Alexandre Janiak, 2014. "Employment protection and capital-labor ratios," Sciences Po Economics Discussion Papers 2014-11, Sciences Po Departement of Economics.
    25. Toshihiko Mukoyama, 2019. "Heterogeneous Jobs and the Aggregate Labour Market," The Japanese Economic Review, Japanese Economic Association, vol. 70(1), pages 30-50, March.
    26. Noritaka Kudoh & Hiroaki Miyamoto & Masaru Sasaki, 2019. "Employment and Hours over the Business Cycle in a Model with Search Frictions," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 31, pages 436-461, January.
    27. Alexandre Janiak & Etienne Wasmer, 2014. "Employment protection and capital-labor ratios," SciencePo Working papers hal-03460272, HAL.

    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ioe:doctra:481. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Jaime Casassus (email available below). General contact details of provider: https://edirc.repec.org/data/iepuccl.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.