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The Distribution of Earnings under Monopsonistic/polistic Competition

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  • Thisse, Jacques-François
  • Toulemonde, Eric

Abstract

Recent empirical contributions in labor economics suggest that individual firms face upward sloping labor supplies. We rationalize this by assuming that idiosyncratic non-pecuniary conditions interact with money wages in workers’ decisions to work for specific firms. Likewise, firms supply differentiated goods in response to differences in consumer tastes. Hence, firms are price-makers and wage-setters. By combining monopolistic and monopsonistic competition, our setting captures general equilibrium interactions between the two markets. The equilibrium involves double exploitation of labor. Compared to the competitive outcome, the high-productive workers are overpaid under free entry, whereas the low-productive workers are underpaid. In the same vein, capital-owners receive a premium, whereas workers are exploited.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7981.

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Date of creation: Sep 2010
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Handle: RePEc:cpr:ceprdp:7981

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Related research

Keywords: labor exploitation; monopolistic competition; monopsonistic competition; wage dispersion; worker heterogeneity;

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  1. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 691-751, September.
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  12. de la Rica, Sara & Dolado, Juan J. & Vegas, Raquel, 2010. "Performance Pay and the Gender Wage Gap: Evidence from Spain," CEPR Discussion Papers 7936, C.E.P.R. Discussion Papers.
  13. Alan Manning & Ted To, 2002. "Oligopsony and Monopsonistic Competition in Labor Markets," Journal of Economic Perspectives, American Economic Association, vol. 16(2), pages 155-174, Spring.
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