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Minimum wage competition

Author

Listed:
  • Koichi Fukumura

    (Kagawa University)

  • Atsushi Yamagishi

    (Princeton University)

Abstract

This paper shows that increased factor mobility might cause the “race to the top” in minimum wage settings, contrary to what other studies have suggested. By focusing on geographical labor mobility, we propose a minimum wage competition model and show that minimum wage rates may increase after a significant increase in mobility because it allows each government to less internalize the negative effect of the minimum wage increase. This result is consistent with the data on European countries from the period of EU’s massive enlargement. We also show that minimum wage rates respond positively to increased geographical mobility when (1) mobile workers face significantly worse labor market conditions, (2) the concerns of economic efficiency are small, and (3) the share of mobile workers is relatively small. The model also yields a normative implication that coordination in setting minimum wages is needed to achieve a desirable outcome.

Suggested Citation

  • Koichi Fukumura & Atsushi Yamagishi, 2020. "Minimum wage competition," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(6), pages 1557-1581, December.
    • Handle: RePEc:kap:itaxpf:v:27:y:2020:i:6:d:10.1007_s10797-020-09603-8
    DOI: 10.1007/s10797-020-09603-8
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    Cited by:

    1. Anindya Bhattacharya & Debapriya Sen, 2021. "Labor policy and multinational firms: The “race to the bottom” revisited," Review of Development Economics, Wiley Blackwell, vol. 25(3), pages 1515-1537, August.
    2. Simon, Andrew & Wilson, Matthew, 2021. "Optimal minimum wage setting in a federal system," Journal of Urban Economics, Elsevier, vol. 123(C).
    3. Yamagishi, Atsushi, 2021. "Minimum wages and housing rents: Theory and evidence," Regional Science and Urban Economics, Elsevier, vol. 87(C).

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    More about this item

    Keywords

    Minimum wages; Geographical mobility; Intergovernmental competition; Immigrants; Race to the top;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy

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