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Minimum Wages and Spatial Equilibrium: Theory and Evidence

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  • Joan Monras

    (CEMFI, Centro de Estudios Monetarios y Financieros)

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 average wages and decreases in employment among the low-skilled. The labor demand elasticity is estimated to be above 1, in the model a necessary condition for the migration responses observed in the data. Low-skilled workers tend to leave the regions that increase minimum wages.

Suggested Citation

  • Joan Monras, 2016. "Minimum Wages and Spatial Equilibrium: Theory and Evidence," Working Papers wp2016_1615, CEMFI.
    • Handle: RePEc:cmf:wpaper:wp2016_1615
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    More about this item

    Keywords

    Minimum wages; spatial equilibrium; internal migration.;
    All these keywords.

    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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