Quantifying Goodwin Growth Cycles with Minimum Wage Shares

This study extends Goodwin's (1967) growth cycle model to consider two types of workers, low- and high-skilled workers. Using Japanese data from 1989 to 2018, we theoretically and empirically investigate how the introduction of the minimum wage share affects the wage shares and employment rates. Introducing the minimum wage share diminishes the amplitude of fluctuations of both the wage shares and the employment rates, and in this sense, it has a stabilizing effect. Reducing the wage gap between low- and high-skilled workers increases the amplitude of fluctuations of the wage shares and employment rates.