Combining minimum wage and exchange rate policy to release the external constraint on growth

Abstract

In this article we analyse the combination of a minimum wage and a devaluation/depreciation so as to release the external constraint on growth. The policy maker aims at achieving both balanced trade and higher growth. These may be reached by devaluating the domestic currency, which however supports traditional industries characterized by high price elasticity and low income elasticity of demand. The release of the external constraint in the short term then yields a stronger constraint in the longer term. If traditional industries are unskilled and labour‐intensive, the setting of a minimum wage distorts the specialization towards sectors with high demand growth. Devaluation/depreciation and minimum wage may thus be combined to release both the short term and longer term external constraint. We determine the condition for such a policy to be efficient. This combined policy must come with an educational policy that supports skill upgrading. It is typically tailored to ‘advanced emerging countries’ which aim at changing their specialization without slowing their growth.devaluation, external constraint, growth, minimum wage, F41, F43, J3,

Les baisses de cotisations sociales ultramarines

“…On pose ε j = ⎯ ε j + ε o j + ε n j . La fonction de demande est au total assez proche de celle proposée par Thirlwall [1979] et Bauduin et al [2008]. Elle traduit l'idée qu'une exonération de cotisations sociales donnée à un secteur particulier dans un DOM augmente la compétitivité prix de ce secteur, à la fois vis-à-vis des produits équivalents importés de l'étranger, ( ( ( ) ) )…”