Holdup in Oligopsonistic Labour Markets: A New Role for the Minimum Wage
AbstractWe 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 InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2043.
Length: 22 pages
Date of creation: Mar 2006
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Other versions of this item:
- Kaas, Leo & Madden, Paul, 2008. "Holdup in oligopsonistic labour markets - a new role for the minimum wage," Labour Economics, Elsevier, vol. 15(3), pages 334-349, June.
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- J48 - Labor and Demographic Economics - - Particular Labor Markets - - - Particular Labor Markets; Public Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-04-08 (All new papers)
- NEP-LAB-2006-04-08 (Labour Economics)
- NEP-LTV-2006-04-08 (Unemployment, Inequality & Poverty)
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