Minimum wage legislation, investment and human capital

A two period, general equilibrium, model is analysed in which agents forese e how the second period outcome is determined by the investment decisions w hich they make in the first period. These decisions concern the acquisition of human and physical capital. The paper considers the impact of a minimum wage in the second period. It shows that, in equilibrium, this policy incr eases both types of investment. There is a range of values of the minimum w age at which the increases in investment are obtained without any reduction in period 2 employment. This is welfare-improving for a range of parameter values. Under very specific circumstances, the minimum wage achieves a Par eto efficient outcome.