Regional Subsidies and Interregional Labor Movement

ISER DP No. 1041

31 Pages Posted: 20 Oct 2018

See all articles by Daisuke Matsuzaki

Daisuke Matsuzaki

Toyo University

Yoshiyasu Ono

Osaka University - Institute of Social and Economic Research (ISER)

Date Written: September 24, 2018

Abstract

When a government considers a subsidy for an underdeveloped region, it has several options: the subsidies can be for land, wages, employment, or production. While land subsidy is a lump-sum transfer, the others are meant to promote local production or worker immigration. Under full employment, replacing the lump-sum subsidy with the other subsidies benefit (harm) the recipient region if it specializes in labor-intensive (land-intensive) activities. If unemployment prevails in both the recipient and non-recipient regions, production and employment subsidies benefit, but a wage subsidy harms, the recipient region. We also analyze asymmetric cases where one region attains full employment while the other region remains underemployed.

Keywords: Transfer, Subsidies, Unemployment, Wage Rigidity

JEL Classification: F22, H71

Suggested Citation

Matsuzaki, Daisuke and Ono, Yoshiyasu, Regional Subsidies and Interregional Labor Movement (September 24, 2018). ISER DP No. 1041. Available at SSRN: https://ssrn.com/abstract=3256071 or http://dx.doi.org/10.2139/ssrn.3256071

Daisuke Matsuzaki (Contact Author)

Toyo University

5-28-20 Hakusan
Bunkyo-ku
Tokyo 112-8606, Tokyo 1128606
Japan

Yoshiyasu Ono

Osaka University - Institute of Social and Economic Research (ISER) ( email )

6-1 Mihogaoka
Ibaraki, Osaka 567-0047
Japan

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