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Elastic labor supply, variable markups, and spatial inequalities

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  • Hajime Takatsuka
  • Dao‐Zhi Zeng

Abstract

Assuming an inelastic labor supply, existing studies show that a larger country has a higher wage rate and a higher individual income. We reexamine these results using a model with an endogenous labor supply and variable markups. We find that these results can be reversed. Specifically, in the larger country, the wage rate is lower but the individual income is higher if the love for variety is strong and trade costs are high. In contrast, the wage rate is higher but the individual income may be lower if the love for variety is weak and trade costs are low.

Suggested Citation

  • Hajime Takatsuka & Dao‐Zhi Zeng, 2018. "Elastic labor supply, variable markups, and spatial inequalities," Review of International Economics, Wiley Blackwell, vol. 26(5), pages 1084-1100, November.
    • Handle: RePEc:bla:reviec:v:26:y:2018:i:5:p:1084-1100
    DOI: 10.1111/roie.12350
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    References listed on IDEAS

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    Cited by:

    1. Xinmeng Li & Dao-Zhi Zeng, 2022. "Frictional unemployment, bargaining, and agglomeration," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 68(1), pages 151-179, February.
    2. Yoshifumi Kon, 2022. "Footloose Capital, Educational Choice, and Wage Inequality," CIRJE F-Series CIRJE-F-1200, CIRJE, Faculty of Economics, University of Tokyo.

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