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 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.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5136.
Length: 18 pages
Date of creation: Aug 2010
Date of revision:
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Other versions of this item:
- Thisse, Jacques-François & Toulemonde, Eric, 2010. "The Distribution of Earnings under Monopsonistic/polistic Competition," CEPR Discussion Papers 7981, C.E.P.R. Discussion Papers.
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-08-28 (All new papers)
- NEP-BEC-2010-08-28 (Business Economics)
- NEP-LAB-2010-08-28 (Labour Economics)
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