Abstract

CARABALLO CUETO, José. Reducing the race to the bottom: A primer on a global floor for minimum wages. Inv. Econ [online]. 2017, vol.76, n.300, pp.33-51. ISSN 0185-1667.

A “race towards the bottom” in very poor countries is a policy that deliberately de- presses wages to attain higher competitiveness in the global market. This policy distorts the comparative advantages that would emerge in the absence of such an economic policy and also induces lower purchasing power, leading to suboptimal consumption. There are barely any theoretical models (to our knowledge) showing the impact of a global minimum for minimum wages. We found that, under such circumstances, a global lower bound for minimum wages that reestablishes the competitive wage rate in very poor countries represents a Pareto improvement: It enhances the markets due to the expansion in sales caused by the increase in real wages of the vast majority (workers). One of the innovations of this primer is to apply a simple DSGE model to the macroeconomic consequences of a global minimum for minimum wages.

Keywords : Minimum wage; global labor standards; race to the bottom; multinationals; DSGE.