Minimum Wages in a Symmetric Model of Monopsonistic Competition

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Minimum Wages in a Symmetric Model of Monopsonistic Competition

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V. Bhaskar ()
Ted To ()

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Abstract

We reconsider the employment effect of a minimum wage on employment in a symmetric model of monopsonistic competition, where each employer competes equally with every other employer. The employment effect depends on the degree of distortion in the labor market. If fixed costs are high (low), the labor market is relatively non-competitive (competitive) and minimum wages increase (decrease) employment. This contrasts with the results of a Salop style model where a minimum wage unambiguously raises employment. We also find that the welfare effect of a small minimum wage is unambiguously positive.

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Paper provided by University of Essex, Department of Economics in its series Economics Discussion Papers with number 548.

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Date of creation: 21 Nov 2002
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Handle: RePEc:esx:essedp:548

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NEP-ALL-2002-11-28 (All new papers)

References listed on IDEAS
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Sattinger, Michael, 1984. "Value of an Additional Firm in Monopolistic Competition," Review of Economic Studies, Blackwell Publishing, vol. 51(2), pages 321-32, April. [Downloadable!] (restricted)
Frank Walsh, 2003. "Comment on 'minimum wages for ronald mcdonald monopsonies: a theory of monopsonistic competition'," Economic Journal, Royal Economic Society, vol. 113(489), pages 718-722, 07. [Downloadable!] (restricted)
V. Bhaskar & 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. [Downloadable!] (restricted)
Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-73, May.

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