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

Qianqian Yang and Nobuaki Hamaguchi
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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

No DP2025-09, Discussion Paper Series from Research Institute for Economics & Business Administration, Kobe University

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.

Keywords: Spatial general equilibrium model; Minimum wage; Core-periphery pattern; Transport cost (search for similar items in EconPapers)
JEL-codes: F12 F16 R12 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2025-05
New Economics Papers: this item is included in nep-inv
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