Revisiting Minimum Wage: From Labor Economics to Spatial Economics

This paper offers an integrated perspective that bridges labor economics and spatial economics to shed light on the broader implications of minimum wage policies. Traditional labor economics, grounded in neoclassical and partial equilibrium models, yields ambiguous theoretical predictions regarding the employment effects of minimum wages, making empirical analysis essential. Yet empirical findings from both developed and developing countries remain mixed, shaped by differences in data, methods, and variable definitions. Spatial economics, particularly through general equilibrium frameworks, provides insight into how agglomeration forces, transport costs, increasing returns, and factor mobility influence regional economic outcomes. These models suggest that core regions benefiting from agglomeration rents may be better positioned to sustain generous public policies, including higher minimum wages. We also review evidence on how minimum wages affect migration and firm location decisions, though results remain inconclusive. Through a comprehensive review of the extant literature, this paper underscores the value of incorporating spatial perspectives in understanding minimum wage effects and identifies directions for future research.