Agglomeration and fair wages

Peter Egger and Tobias Seidel

Canadian Journal of Economics, 2008, vol. 41, issue 1, 271-291

Abstract: This paper implements a fair wage constraint into an analytically tractable core-periphery agglomeration model. This enables us to study the role of imperfect labour markets for the pattern of agglomeration. In the short run, a marginal increase in fair wage preferences leads to an unambiguous compression of the national factor price differential between skilled and unskilled labour, involving an increase in the unemployment rate of unskilled workers. In the long run, this mechanism renders full dispersion of an unstable equilibrium already at higher trade costs than in perfect labour markets. There is a tendency for fair wage preferences to enforce agglomeration.

JEL-codes: F12 F15 F16 F21 R12 (search for similar items in EconPapers)
Date: 2008
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