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Minimum Wages and Spatial Equilibrium: Theory and Evidence

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  • Joan Monras

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)

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.

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  • Joan Monras, 2016. "Minimum Wages and Spatial Equilibrium: Theory and Evidence," SciencePo Working papers Main hal-03459328, HAL.
    • Handle: RePEc:hal:spmain:hal-03459328
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03459328
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    More about this item

    JEL classification:

    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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