Minimum wages and spatial equilibrium: Theory and evidence

Recognition Program

Authors: Joan Monràs

Journal of Labor Economics, Vol. 37, No 3, 853-904, July, 2019

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 wages and decreases in employment among the low skilled. The labor demand elasticity is estimated to be around 1, which in the model is in line with the migration responses observed in the data. Low-skilled workers tend to leave regions that increase minimum wages.

This paper is acknowledged by the Barcelona School of Economics Recognition Program