Minimum Wage, Credit Rationing and Unemployment in a Monetary Economy
The aim of this paper is to analyse the theoretical links between minimum wage
legislation and the level of employment in the theoretical framework of the monetary theory of
production (MTP) in which the high-wage effect operates under the constraint of credit
rationing at the expense of small firms. It will show that a rise in wages via external
intervention, and particularly by means of a minimum wage law, induces firms to accumulate
more capital and that this has a positive effect on the level of employment, thus going counter
to the mainstream view that labour market deregulation generates positive outcomes.
Moreover it will show that the high-wage effect can solve the paradox of profits in the MTP
owing to bankruptcies of firms facing credit rationing.
Guglielmo FORGES DAVANZATI, Andrea PACELLA
Monetary Theory of Production, Credit Rationing, Wages, Profits, Employment.