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Should the Industrial Region Fear Hollowing Out by Raising the Minimum Wage?

Author

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  • Qianqian Yang

    (Graduate School of Economics, Kobe University, JAPAN)

  • Nobuaki Hamaguchi

    (Research Institute for Economics and Business Administration, Kobe University, JAPAN)

Abstract

This paper develops a spatial general equilibrium model with exogenous minimum wages to investigate regional minimum wage disparities in the New Economic Geography. Numerical simulations in a two-region economy reveal the impact of minimum wage hikes on the spatial distribution of firms. We observe industrial hollowing out beyond a critical minimum wage gap threshold, yet regions with higher minimum wages can remain attractive as the core, particularly with low transport costs. Such attractiveness can be interpreted as agglomeration rent. We further examine the sustainability of the core-periphery pattern and the impact of minimum wage increases on the local labor market.

Suggested Citation

  • Qianqian Yang & Nobuaki Hamaguchi, 2025. "Should the Industrial Region Fear Hollowing Out by Raising the Minimum Wage?," Discussion Paper Series DP2025-09, Research Institute for Economics & Business Administration, Kobe University.
    • Handle: RePEc:kob:dpaper:dp2025-09
    as

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    File URL: https://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2025-09.pdf
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • 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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