We consider an economy (e.g., Chile 1973-83 or modern Turkey) with a minimum wage sector and a free sector and a tax on labor earnings. We ask can a minimum wage hike raise employment and economic efficiency?

In an overlapping generations model, capital and labor produce two tradeable goods. A kleptocratic government spends the tariff revenue. Trade liberalization benefits the retired generation if and only if the relative price of the capital intensive good rises. Starting from autarky, a small...

Sebastian Edwards and Alejandra Cox Edwards in their analysis of the Chilean economic liberalization argue that both capital inflows and outflows may have harmed the Chilean economy. They model the Chilean economy as using labor and fixed factors to produce traded and non-traded goods subject to...