Minimum income, unemployment compensations and employment subsidies

Starting with the problem of existence of a Walrasian equilibrium, in relation to the question of survival, the consequences of imposing a minimum real income are studied within the framework of a general equilibrium model with a disaggregated labor market. Two solutions are considered to face the unemployment which may result : the payment of unemployment compensations on the one hand, and the enforcement of full employment by employment subsidies on the other hand. In both cases equilibria are characterized in real terms and we show that the existence of an equilibrium is not guaranteed if a budget deficit results. We also show that the effect of an increase in the minimum real income on the salary scale depends on the technological relations which exist between the various categories of labor. In particular it does not necessarily induce an increase in the wages paid in the sectors where full employment prevails. On the other hand it always leads to a worsening of unemployment and a reduction in production.