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The effect of labor market monopsony on economic growth

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  • Barr, Tavis
  • Roy, Udayan

Abstract

In this endogenous growth model, a minimum efficient scale of production and workers' home-to-work travel costs combine to give firms monopsony power, and this monopsony power leads to slower growth. Monopsony drives the wage below the marginal product of labor. This lower wage leads to lower investment in human capital and thereby to a lower growth rate. This makes investment in human capital - and therefore the growth rate - suboptimal. We provide evidence from a cross-country panel to support our model: Urbanization, which we assume is determined by a country's exogenous population density and cropland area, positively impacts the wage share of output; the wage share positively impacts educational attainment; higher-income countries have higher wage shares; and within-country upticks in the wage share have a positive lagged effect on the growth rate.

Suggested Citation

  • Barr, Tavis & Roy, Udayan, 2008. "The effect of labor market monopsony on economic growth," Journal of Macroeconomics, Elsevier, vol. 30(4), pages 1446-1467, December.
  • Handle: RePEc:eee:jmacro:v:30:y:2008:i:4:p:1446-1467
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    References listed on IDEAS

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    Cited by:

    1. Arsenault Morin, Alex & Geloso, Vincent & Kufenko, Vadim, 2016. "Monopsony and industrial development in nineteenth century Quebec: The impact of seigneurial tenure," Violette Reihe: Schriftenreihe des Promotionsschwerpunkts "Globalisierung und Beschäftigung" 51/2016, University of Hohenheim, Carl von Ossietzky University Oldenburg, Evangelisches Studienwerk.
    2. Thomas Werner & Friedrich L. Sell, 2015. "Price Effects of the Minimum Wage: A Survey Data Analysis for the German Construction Sector," LABOUR, CEIS, vol. 29(3), pages 310-326, September.
    3. Sell, Friedrich L. & Ruf, Ernst K., 2014. "Anmerkungen zum Monopson am Arbeitsmarkt II," Working Papers in Economics 2014,1, Bundeswehr University Munich, Economic Research Group.
    4. Friedrich L. Sell & Ernst K. Ruf, 2016. "Monopsony in the Labor Market, Minimum Wages and the Time Horizon: Some Unresolved Issues," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 44(1), pages 75-90, March.
    5. Werner, Thomas & Sell, Friedrich L. & Reinisch, David C., 2013. "Price effects of minimum wages: Evidence from the construction sector in East and West Germany," Working Papers in Economics 2013,4, Bundeswehr University Munich, Economic Research Group.
    6. Addison, Tony & Anand, Prathivadi Bhayankaram, 2012. "Aid and Infrastructure Financing: Emerging Challenges with a Focus on Africa," WIDER Working Paper Series 056, World Institute for Development Economic Research (UNU-WIDER).

    More about this item

    Keywords

    O57 J42 L13 Economic growth Human capital Monopsony Wage share;

    JEL classification:

    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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