The Macroeconomics of the Social Chapter: Minimum Wages, Human Capital and Labour Productivity

Abstract

This paper integrates trade and macro theory to provide a two-country, multi-product framework, including debt servicing and profit repatriation in the current account, and foreign money, financial assets and shares in the capital account. We investigate the effects of minimum wage legislation on the domestic tradeables and inward foreign investment sectors. Our findings show that there are asymmetrical effects on international debt and competitiveness. Thus policy makers must have a more detailed knowledge of the sectoral structure of the country they are concerned with in order to make informed decisions as to the merits of minimum wage legislation.

Keywords: wages, productivity, international debt, competitiveness

JEL Classification: F21, F30, F41, J31