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Monopsony, Efficiency Wages and Minimum Wages

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  • Felix R. FitzRoy
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    Abstract

    Monopsony models imply that wages must be raised whenever additional workers are hired, and firms have permanent vacancies at existing wages. There is no evidence for this in low-wage markets, and our case study indicates a permanent queue of applicants, so one popular explanation for the apparent lack of negative employment effects of minimum wages is unconvincing. Both convex adjustment costs and efficiency wage models with unemployment benefits and taxes, or a competitive model with compensating effort to maintain utility suggest that a positive employment effect of a small minimum wage is possible, but rather unlikely.

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    Bibliographic Info

    Paper provided by Centre for Research into Industry, Enterprise, Finance and the Firm in its series CRIEFF Discussion Papers with number 9921.

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    Date of creation: Oct 1999
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    Handle: RePEc:san:crieff:9921

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    Keywords: Monopsony; Efficiency wage; Minimum wage; effort;

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    Cited by:
    1. Catherine Armington & Zoltan Acs, 2000. "Differences in Job Growth and Persistence in Services and Manufacturing," Working Papers 00-04, Center for Economic Studies, U.S. Census Bureau.
    2. Jonathan Thomas, 2000. "Fair Pay and a Wagebill Argument for Wage Rigidity and Excessive Employment Variability," CESifo Working Paper Series 234, CESifo Group Munich.

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