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Firms' location decisions and minimum wages

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  • Méjean, Isabelle
  • Patureau, Lise

Abstract

We consider the impact minimum wage laws have on firms' location choices in a new economic geography model with exogenous minimum wage constraints. The minimum wage policy has a twofold influence on the relative attractiveness of the home country, simultaneously affecting its relative cost competitiveness and its aggregate income. The end effect depends on interactions between the skilled and unskilled segments of the labor market. If workers are strongly substitutable, the effect of raising low-skilled workers income is more than compensated by a drop in their employment level. Under such circumstances, a high minimum wage policy reduces the country's attractiveness by increasing production costs and reducing aggregate demand. Aggregate demand is further reduced once adjustments in skilled wages linked to international competitive pressures are taken into account.

Suggested Citation

  • Méjean, Isabelle & Patureau, Lise, 2010. "Firms' location decisions and minimum wages," Regional Science and Urban Economics, Elsevier, vol. 40(1), pages 45-59, January.
  • Handle: RePEc:eee:regeco:v:40:y:2010:i:1:p:45-59
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    References listed on IDEAS

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    Cited by:

    1. Ulrich Zierahn, 2013. "Agglomeration, congestion, and regional unemployment disparities," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 51(2), pages 435-457, October.
    2. Shelley M. Kimelberg & Elizabeth Williams, 2013. "Evaluating the Importance of Business Location Factors: The Influence of Facility Type," Growth and Change, Wiley Blackwell, vol. 44(1), pages 92-117, March.

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