RIEB Discussion Paper Series No.2025-09

Title

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

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

JEL Classification

F12, F16, R12

Inquiries

Qianqian YANG
Graduate School of Economics, Kobe University

Nobuaki HAMAGUCHI
Research Institute for Economics and Business Administration,
Kobe University
Rokkodai-cho, Nada-ku, Kobe
657-8501 Japan
Phone: +81-78-803-7036
FAX: +81-78-803-7059