Trade And Minimum Wages In General Equilibrium: Theory And Evidence
Speaker(s) Dr. Arpita Chatterjee, University of South Wales, Australia Publication CAFRAL Conference room on Mezzanine Floor, Main Building. Reserve Bank of India, Fort, Mumbai 400 001
ABSTRACT

This paper develops a new heterogeneous firm model under perfect competition in a Heckscher- Ohlin setting. It shows that a binding minimum wage raises product prices, encourages substitution away from labor, and creates unemployment. It reduces output and exports of the labor intensive good, despite higher prices and, less obviously, selection in the labor (capital) intensive sector becomes stricter (weaker). Exploiting rich regional variation in minimum wages across Chinese prefectures we find robust evidence in support of our theoretical predictions using Chinese Customs data matched with firm level production data.