Isabelle Méjean () (CEPII, 9 rue G. Pitard, 75015 Paris, France) Lise Patureau () (THEMA, University of Cergy-Pontoise, 33, boulevard du Port, 95011 Cergy-Pontoise Cedex, France)
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The paper contributes to the living debate on the controversial effects of minimum wage policy on economic performances, focusing on its impact on firms’ location choice. The question is investigated through a theoretical model, that incorporates features from the new trade literature (Krugman (1991)) and the labor-market literature. In a two-country framework, we model endogenous entry of firms under wage rigidity. In this setting, the impact of an unilateral increase in the home country’s minimum wage is analyzed. The policy shock is shown to have a twofold influence on the relative attractiveness of the home country, simultaneously affecting its relative cost competitiveness and the aggregate demand addressed to firms. Both effects do not necessarily go in the same direction, hence the final effect on firms’ location decisions is ambiguous. We show that it notably depends on the adjustments that occur on the skilled and unskilled labor markets. Our overall results suggest that the design of labor-market policies should take into account their impact on firms’ location decisions, if willing to evaluate their whole consequences in the national economy.
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Paper provided by THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise in its series THEMA Working Papers with number
2008-06.
Find related papers by JEL classification: F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies F16 - International Economics - - Trade - - - Trade and Labor Market Interactions F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Hummels, David, 2001.
"Time as a Trade Barrier,"
GTAP Working Papers
1152, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
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