When skilled and unskilled labor are mobile: a new economic geography approach

This paper develops an analytically solvable new economic geography model of the 'footloose entrepreneur' class in which not only skilled labor is mobile, but also unskilled labor. Allowing unskilled labor to move freely between different regions increases the agglomeration incentive of skilled labor. Depending on the level of unskilled labor mobility, the geographical distribution of economic activity is either a 'pitchfork' or a 'tomahawk'. If unskilled labor is very mobile, complete agglomeration is the only stable outcome. When trade costs are high, skilled and unskilled labor migration reinforce each other leading to agglomeration of both types of labor in the same region. For lower levels of trade cost, unskilled labor returns to its region of origin, whereas skilled labor remains concentrated.