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Predicting the impact of a national minimum wage: are the general equilibrium models up to the task?

by Gilad Isaacs, Servaas Storm, Econ 3x3 in 2016

This article analyses whether computable general equilibrium (CGE) models are suitable for projecting the likely consequences of implementing a national minimum wage. Referring to modelling exercises undertaken by the National Treasury and the Development Policy Research Unit (DPRU), it shows that their projection of a strongly negative impact on employment and other macroeconomic indicators is a direct result of the architecture and assumptions of these models. By design these models preclude alternative outcomes; this renders them rather unsuitable as guides to policymaking.