Market, Social Actions and Minimum Wage: From the Perspective of Political Economy
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| Title | Market, Social Actions and Minimum Wage: From the Perspective of Political Economy
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| Author | Ye Jingyi, Zhao Kui and Fang Min |
| Organization | School of Economics, Peking University |
| Email | zhaokuipku@163.com |
| Key Words | Minimum Wage; Social Actions; Prisoner’s Dilemma |
| Abstract | The minimum wage has evolved over the history and became a widely applied institutional arrangement in the real world. Traditional economic theory believes that it undermines the interest of capitalists and reduces market efficiency, while its benefit to workers and the overall social welfare is under dispute. In a different way however, from the perspective of political economy and taking into consideration the possibility of market shutdown caused by workers’ social actions as well as the prisoner’s dilemma among capitalists, this article comes to a different conclusion. The argument is elaborated through an infinite horizon dynamic game model into which we also introduce the influencing factors including the interest disparity among the worker’s group and economic fluctuation. According to the analysis, there are chances for minimum wage to raise the welfare of both sides of the labor and the capital and achieve Pareto improvement, as long as it meets certain conditions (e.g. large income disparities between workers and capital owners, a relatively high possibility for workers to take social actions). |
| Serial Number | WP754 |
| Time | 2014-11-14 |
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