RIEB, Kobe University

Effects on the Cross-Country Difference in the Minimum Wage on International Trade, Growth and Unemployment

We construct a dynamic general-equilibrium North-South growth model with international trade with both homogenous and heterogeneous firms, endogenous northern economic growth, and unemployment. Unemployment is emerged from the imbalance between the endogenous labor supply and the firms' labor demand under binding the minimum wage policy. The north produces two goods, high-tech good and low-tech good, while the South produces only low-tech good by the scarcity of technology. Both goods are traded between the countries. The production of the high-tech good needs R&D activity for variety creation, which is a source of economic growth.

In this setting, we analyze the southern policy change that increases the southern minimum wage, and show that the increase in the southern minimum wage affects the structure of international trade and the northern growth rate and unemployment.