Optimal minimum wages in spatial economies

Research on Monday Seminar
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Gabriel Ahlfeldt

Monday 6 Feb 2023, 11:30 - 12:30
Van der Goot Building
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We develop a quantitative general-equilibrium framework for the normative evaluation of minimum wages in spatial economies with monopsonistic labour markets.

We quantify the model for German micro-regions and successfully over-identify its predictions against the effects of the 2015 German minimum wage observed in data. Simulating the model, we find that at low levels, spatially blind national minimum wages can increase welfare and spatial equity simultaneously.

At higher levels, however, welfare gains are traded against employment losses and spatial inequality. Because regional minimum wages are not spatially blind, they can increase employment and welfare in a spatially neutral manner.


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