Effects of Minimum Wage on Automation and Innovation in a Schumpeterian Economy

This study explores the effects of minimum wage on automation and innovation in a Schumpeterian growth model. We find that raising the minimum wage decreases the employment of low-skill workers and has ambiguous effects on innovation and automation. Specifically, if the elasticity of substitution between low-skill workers and high-skill workers in production is less (greater) than unity, then raising the minimum wage leads to an increase (a decrease) in automation and innovation. We also calibrate the model to aggregate data to quantify the effects of minimum wage on the macroeconomy