The Distribution of Earnings under Monopsonistic/polistic Competition
AbstractRecent 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 InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7981.
Date of creation: Sep 2010
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Other versions of this item:
- Thisse, Jacques-François & Toulemonde, Eric, 2010. "The Distribution of Earnings under Monopsonistic/polistic Competition," IZA Discussion Papers 5136, Institute for the Study of Labor (IZA).
- D33 - Microeconomics - - Distribution - - - Factor Income Distribution
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
- J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
- J71 - Labor and Demographic Economics - - Labor Discrimination - - - Hiring and Firing
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
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