Discussion Papers 2022

CIRJE-F-1200	"Footloose Capital, Educational Choice, and Wage Inequality"
Author Name	Kon, Yoshifumi
Date	September 2022
Full Paper	PDF file
Remarks

Abstract
This study investigates wage inequality between high- and low-skilled workers in a tworegionfootloose capital model with endogenous educational choices. Firms’ location decisions are governed by two opposing forces: agglomeration force and dispersion force. Comparative statics are conducted regarding the transportation costs of the differentiated goods sector. When consumers’ preference for differentiated goods are weak relative to homogeneous goods, declining transportation costs push firms from the populous region to the peripheral. Furthermore, wage inequality in the core region shrinks, but expands in the peripheral region.
Keywords: wage inequality, footloose capital model, home market effect, educational investment

Abstract

This study investigates wage inequality between high- and low-skilled workers in a tworegionfootloose capital model with endogenous educational choices. Firms’ location decisions are governed by two opposing forces: agglomeration force and dispersion force.
Comparative statics are conducted regarding the transportation costs of the differentiated goods sector. When consumers’ preference for differentiated goods are weak relative to homogeneous goods, declining transportation costs push firms from the populous region to the peripheral. Furthermore, wage inequality in the core region shrinks, but expands in the peripheral region.

Keywords: wage inequality, footloose capital model, home market effect, educational investment