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Holdup in oligopsonistic labour markets - a new role for the minimum wage

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  • Kaas, Leo
  • Madden, Paul
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Abstract

We consider a labour market model of oligopsonistic wage competition and show that there is a holdup problem although workers do not have any bargaining power. When a firm invests more, it pays a higher wage in order to attract workers from competitors. Because workers participate in the returns on investment while only firms bear the costs, investment is inefficiently low. A binding minimum wage can achieve the first-best level of investment, both in the short run for a given number of firms and in the long run when the number of firms is endogenous.

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Bibliographic Info

Article provided by Elsevier in its journal Labour Economics.

Volume (Year): 15 (2008)
Issue (Month): 3 (June)
Pages: 334-349

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Handle: RePEc:eee:labeco:v:15:y:2008:i:3:p:334-349

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  1. V. Bhaskar & Ted To, 1996. "Minimum Wages for Ronald McDonald Monopsonies: A Theory of Monopsonistic Competition," Labor and Demography 9603001, EconWPA, revised 21 May 1996.
  2. Hart, Oliver D, 1985. "Monopolistic Competition in the Spirit of Chamberlin: A General Model," Review of Economic Studies, Wiley Blackwell, vol. 52(4), pages 529-46, October.
  3. Acemoglu, Daron, 2001. "Good Jobs versus Bad Jobs," Journal of Labor Economics, University of Chicago Press, vol. 19(1), pages 1-21, January.
  4. N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring.
  5. Cahuc, P. & Michel, P., 1992. "Minimum Wage, Unemployment and Growth," Papiers d'Economie Mathématique et Applications 92.35, Université Panthéon-Sorbonne (Paris 1).
  6. Venkataraman Bhaskar & Ted To, 1999. "Oligopsony and the Distribution of Wages," CIRJE F-Series CIRJE-F-42, CIRJE, Faculty of Economics, University of Tokyo.
  7. Acemoglu, Daron & Shimer, Robert, 1999. "Holdups and Efficiency with Search Frictions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 827-49, November.
  8. Malcomson, J., 1998. "Individual employment contracts," Discussion Paper Series In Economics And Econometrics 9804, Economics Division, School of Social Sciences, University of Southampton.
  9. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
  10. Leo Kaas & Paul Madden, 2010. "Minimum wages and welfare in a Hotelling duopsony," Economic Theory, Springer, vol. 43(2), pages 167-188, May.
  11. Daron Acemoglu & Joern-Steffen Pischke, 1998. "Beyond Becker: Training in Imperfect Labor Markets," Working papers 98-12, Massachusetts Institute of Technology (MIT), Department of Economics.
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Cited by:
  1. Kaas, Leo & Madden, Paul, 2008. "Minimum Wages and Welfare in a Hotelling Duopsony," IZA Discussion Papers 3434, Institute for the Study of Labor (IZA).
  2. Paul Madden, 2010. "Gametheoretic analysis of basic team sports leagues," The School of Economics Discussion Paper Series 1006, Economics, The University of Manchester.
  3. Paul Madden, 2009. "Modelling strategic interactions in sport leagues," The School of Economics Discussion Paper Series 0909, Economics, The University of Manchester.
  4. F. Angel-Urdinola, Diego, 2008. "Can the Introduction of a Minimum Wage in FYR Macedonia Decrease the Gender Wage Gap?," Policy Research Working Paper Series 4795, The World Bank.
  5. Kaas, Leo, 2008. "Human Capital Externalities with Monopsonistic Competition," IZA Discussion Papers 3729, Institute for the Study of Labor (IZA).

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