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The Distribution of Earnings under Monopsonistic/polistic Competition

Author

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  • Thisse, Jacques-François

    (CORE, Université catholique de Louvain)

  • Toulemonde, Eric

    (University of Namur)

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 encapsulates 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.

Suggested Citation

  • Thisse, Jacques-François & Toulemonde, Eric, 2010. "The Distribution of Earnings under Monopsonistic/polistic Competition," IZA Discussion Papers 5136, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp5136
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    References listed on IDEAS

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    Cited by:

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    3. Wrede, Matthias, 2015. "A continuous logit hotelling model with endogenous locations of consumers," Economics Letters, Elsevier, vol. 126(C), pages 81-83.

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    More about this item

    Keywords

    wage dispersion; worker heterogeneity; monopsonistic competition; monopolistic competition; labor exploitation;
    All these keywords.

    JEL classification:

    • 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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