To examine the effects of heterogeneous labor mobility on the distribution of industries and analyze the subsidy policy for attracting firms, this paper develops an analytically solvable new economic geography model, which incorporates heterogeneous locational preferences and an intra-industry externality into the footloose capital model. Followed by the equilibrium allocation of labor, the equilibrium distribution of capital exhibits various bifurcation forms, ranging from supercritical to subcritical patterns, which depend on the exogenous parameters. On the examination of the subsidy competition, the full (or partial) core region’s ability to host capital in its region is getting worse when the dispersion force is becoming relatively strong. If the welfare weight of labor is not negligible, the partial core region loses its advantage to host mobile capital and an endless race-to-the-top situation of subsidy competition may emerge. This paper provides a more general insight regarding the effects of the relative strength of the dispersion force to the agglomeration force on the equilibrium outcomes of subsidy competition in the spatial economy.