DP3286 National Minimum Wages, Capital Mobility and Global Economic Growth

Author(s): Andreas Irmen, Berthold Wigger
Publication Date: March 2002
Keyword(s): capital mobility, endogenous technical change, minimum wages, unemployment
JEL(s): E24, F21, O41
Programme Areas: International Macroeconomics, Labour Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3286

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.