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Holdup in oligopsonistic labour markets - a new role for the minimum wage

  • Kaas, Leo
  • Madden, Paul
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We consider a labour market model of oligopsonistic wage competition and show that there is a holdup problem although workers do not have any bargaining power. When a firm invests more, it pays a higher wage in order to attract workers from competitors. Because workers participate in the returns on investment while only firms bear the costs, investment is inefficiently low. A binding minimum wage can achieve the first-best level of investment, both in the short run for a given number of firms and in the long run when the number of firms is endogenous.

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Article provided by Elsevier in its journal Labour Economics.

Volume (Year): 15 (2008)
Issue (Month): 3 (June)
Pages: 334-349

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Handle: RePEc:eee:labeco:v:15:y:2008:i:3:p:334-349
Contact details of provider: Web page: http://www.elsevier.com/locate/labeco

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  1. Acemoglu, Daron & Shimer, Robert, 1999. "Holdups and Efficiency with Search Frictions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 827-49, November.
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  3. L. Kaas & P. Madden, 2006. "Minimum Wages and Welfare in a Hotelling Duopsony," The School of Economics Discussion Paper Series 0604, Economics, The University of Manchester.
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  7. Bhaskar, V & To, Ted, 1999. "Minimum Wages for Ronald McDonald Monopsonies: A Theory of Monopsonistic Competition," Economic Journal, Royal Economic Society, vol. 109(455), pages 190-203, April.
  8. Hart, Oliver D, 1985. "Monopolistic Competition in the Spirit of Chamberlin: A General Model," Review of Economic Studies, Wiley Blackwell, vol. 52(4), pages 529-46, October.
  9. Acemoglu, Daron, 2001. "Good Jobs versus Bad Jobs," Journal of Labor Economics, University of Chicago Press, vol. 19(1), pages 1-21, January.
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