Minimum Wage, Trade and Unemployment in General Equilibrium

Posted: 1 Jun 2020

See all articles by Sugata Marjit

Sugata Marjit

Centre for Studies in Social Sciences, Calcutta; Indian Institute of Foreign Trade; City University of Hong Kong (CityU) - Department of Economics & Finance

Shrimoyee Ganguly

Jadavpur University - Department of Economics

Rajat Acharyya

Department of Economics, Jadavpur University

Multiple version iconThere are 2 versions of this paper

Date Written: May 2, 2020

Abstract

The path breaking work of Card and Krueger (1993), showing higher minimum wage can increase employment turned the age-old conventional wisdom on its head. This paper demonstrates that this apparently paradoxical result is perfectly plausible in a competitive general equilibrium production structure of a small open economy with a non-traded good, without taking any recourse to monopsony, spatial heterogeneity, heterogeneity of consumers etc. the usual theoretical drivers behind the result. Following Jones and Marjit (1992) we build up a simple general equilibrium model with complementary relationship in production and we show that higher minimum wage can raise aggregate employment. Expansion in the non-traded sector following a wage hike may be consistent with the overall expansion of the export sector in a multi good framework, an unlikely outcome in a conventional two good models which cannot accommodate complementary relationship in production.

Keywords: minimum wage, employment, non-traded good

JEL Classification: J200, J300, F110, F160

Suggested Citation

Marjit, Sugata and Marjit, Sugata and Ganguly, Shrimoyee and Acharyya, Rajat, Minimum Wage, Trade and Unemployment in General Equilibrium (May 2, 2020). CESifo Working Paper Series No. 8090, Available at SSRN: https://ssrn.com/abstract=3591299

Sugata Marjit (Contact Author)

Indian Institute of Foreign Trade ( email )

New Delhi
QUTUB INSTITUTIONAL AREA
NEW DELHI, 110016
India

Centre for Studies in Social Sciences, Calcutta ( email )

R 1, B.P. Township
Kolkata, West Bengal, India
Kolkata, West Bengal 700094
India

City University of Hong Kong (CityU) - Department of Economics & Finance ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

Shrimoyee Ganguly

Jadavpur University - Department of Economics ( email )

Kolkata, 700032
India

Rajat Acharyya

Department of Economics, Jadavpur University ( email )

188, Raja S.C. Mallick Rd, Kolkata 700032
Calcutta, West Bengal 700032
India

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