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Theory of Collusion in the Labor Market

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  • Pedro Gonzaga

    ()
    (Faculdade de Economia da Universidade do Porto)

  • António Brandão

    ()
    (Faculdade de Economia da Universidade do Porto)

  • Hélder Vasconcelos

    ()
    (Faculdade de Economia da Universidade do Porto)

Abstract

Despite the major concern of the competition authority to forbid and prosecute formal cartels who cooperatively fix prices, limit production or divide markets, there seems to be little regulation and investigation of collusive practices in the labor market. For that reason, this article analyzes the economic effects of cooperative wage fixing in industries that use one type of labor as the only input, while the other assumptions are kept as general as possible. Under the one input assumption it was found that collusion in the labor market and collusion in the product market have exactly the same results, which include the rise in prices and the fall in output, employment and wages. The higher prices and lower wages in cartelized industries are not only associated with the elimination of the well known business stealing effect, but also with the elimination of the labor force stealing effect. The conclusions in this paper can be generalized to industries that use more than one input, as long as the cartel is able to fix the prices of all the inputs.

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Bibliographic Info

Paper provided by Universidade do Porto, Faculdade de Economia do Porto in its series FEP Working Papers with number 477.

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Length: 25 pages
Date of creation: Jan 2013
Date of revision:
Handle: RePEc:por:fepwps:477

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Keywords: Collusion; labor market; oligopoly; oligopsony; business stealing effect; labor force stealing effect.;

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  1. Bergès-Sennou, F. & Caprice, S., 2004. "Is competition or collusion in the product market relevant for labour markets ?," Economics Working Paper Archive (Toulouse) 200412, French Institute for Agronomy Research (INRA), Economics Laboratory in Toulouse (ESR Toulouse).
  2. Natalya Y. Shelkova, 2008. "Low-wage labor markets amd the power of suggestion," Working Papers 1112, Princeton University, Department of Economics, Industrial Relations Section..
  3. Friedman, James W, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Wiley Blackwell, vol. 38(113), pages 1-12, January.
  4. Arijit Mukherjee & Luís Vasconcelos, 2012. "Star Wars: Exclusive Talent and Collusive Outcomes in Labor Markets," Journal of Law, Economics and Organization, Oxford University Press, vol. 28(4), pages 754-782, October.
  5. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
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