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Minimum Wages and Spatial Equilibrium: Theory and Evidence

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  • Joan Monras

Abstract

This paper introduces a spatial equilibrium model that relates earnings, employment, and internal migration responses to minimum wage increases. Population moves to or away from regions that increase minimum wages depending on the labor demand elasticity and on the financing of unemployment benefits. The empirical evidence shows that increases in minimum wages lead to increases in wages and decreases in employment among the low skilled. The labor demand elasticity is estimated to be around 1, which in the model is in line with the migration responses observed in the data. Low-skilled workers tend to leave regions that increase minimum wages.

Suggested Citation

  • Joan Monras, 2019. "Minimum Wages and Spatial Equilibrium: Theory and Evidence," Journal of Labor Economics, University of Chicago Press, vol. 37(3), pages 853-904.
    • Handle: RePEc:ucp:jlabec:doi:10.1086/702650
    DOI: 10.1086/702650
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    JEL classification:

    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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