Minimum Wage, Trade and Unemployment in General Equilibrium

18 Pages Posted: 12 Feb 2020

See all articles by Sugata Marjit

Sugata Marjit

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

Shrimoyee Ganguly

Jadavpur University - Department of Economics

Rajat Acharyya

Jadavpur University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: 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 Ganguly, Shrimoyee and Acharyya, Rajat, Minimum Wage, Trade and Unemployment in General Equilibrium (2020). CESifo Working Paper No. 8090, Available at SSRN: https://ssrn.com/abstract=3536735

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 (CityUHK) - 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

Jadavpur University - Department of Economics ( email )

188, Raja S.C. Mallick Rd, Kolkata 700032
Calcutta, West Bengal 700032
India
91-33-472-6382 (Phone)

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