Effects of Minimum Wage Share and Wage Gap Reduction on Cyclical Fluctuation: A Goodwin Approach

This study extends Goodwin’s growth cycle model by considering low- and high- skilled workers. Using the parameters obtained from the Japanese economy data, we conduct numerical simulations to reproduce Japanese business cycles. We investigate how the introduction of the minimum wage share and reduction in the wage gap between low- and high-skilled workers affect the wage share and employment rates. The results reveal that introducing the minimum wage share diminishes the amplitude of the fluctuations in both the wage shares and employment rates of the two types of workers. Reducing the wage gap decreases the amplitude of fluctuations in the wage share and employment rate of high-skilled workers and increases the amplitude of fluctuations in the wage share and employment rate of low-skilled workers.