MARKET SIZE, SIZE DISTRIBUTION OF FIRMS AND URBAN-RURAL UNEMPLOYMENT

Most of the related literature on the rural-urban model, based on constant returns to scale and a perfect competition setup, proves that raising the minimum wage level will attract more migrants to an urban area's modern sector and thus lead to a higher unemployment rate. Deviating from the tra...

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Bibliographic Details
Published in:Academia economic papers 2016-03, Vol.44 (1), p.1
Main Authors: Huang, Yo-Yi, Huang, Deng-Shing
Format: Article
Language:chi ; eng
Subjects:
Economic theory
Marginal costs
Minimum wage
Perfect competition
Rural urban relations
Studies
Unemployment
Online Access:Get full text
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Summary:Most of the related literature on the rural-urban model, based on constant returns to scale and a perfect competition setup, proves that raising the minimum wage level will attract more migrants to an urban area's modern sector and thus lead to a higher unemployment rate. Deviating from the traditional setup, we adopt the new trade theory of increasing returns to scale (IRTS) and imperfect competition, extend it to consider firm heterogeneity (the coexistence of big and small firms), and analyze how the market size and minimum wage level might affect the firm size distribution and the rate of unemployment in a small open economy. The major findings are as follows: With big firms' advantage in marginal cost and small firms' advantage in fixed cost, (1) if the substitution elasticity between the big vs. small firms' products is large enough, then larger market size will benefit the big firms. (2) Given a level of substitution elasticity, raising the minimum wage will offset the big firms' advantage in marginal
ISSN:1018-161X
1810-4851