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Wage Determination and Imperfect Competition

  • Alison Booth

A striking feature of the past few decades has been the development of wage determination models that assume that labour markets are imperfectly competitive. This paper discusses two such models (trade unions and oligopsony), although there are many more. It also asks if imperfectly competitive models should be used whenever researchers are modelling the labour market. Some people would argue for this only in cases when the predictions and comparative statics of the imperfectly competitive model differ from those of the competitive model. Of course, to know this, one needs to know precisely what the predictions and comparative statics of the respective models are. Moreover, for policymakers to be able to determine if an intervention is required in the first place, there does need to be some analytical framework to act as a guide. In the perfectly competitive model of the labour markets, for example, typically no intervention or regulation would be justified. However, labour economics has moved far beyond this position, with the incorporation of new ideas into modeling wage determination in imperfectly competitive labour markets, and with the availability of better datasets to facilitate empirical investigation.

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File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2014-03/27_2014_booth.pdf
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Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2014-27.

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Length: 27 pages
Date of creation: Mar 2014
Date of revision:
Handle: RePEc:een:camaaa:2014-27
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  1. Dobbelaere, Sabien & Mairesse, Jacques, 2010. "Panel Data Estimates of the Production Function and Product and Labor Market Imperfections," IZA Discussion Papers 5176, Institute for the Study of Labor (IZA).
  2. Manning, Alan, 2011. "Imperfect Competition in the Labor Market," Handbook of Labor Economics, Elsevier.
  3. Booth, Alison L. & Coles, Melvyn, 2007. "A microfoundation for increasing returns in human capital accumulation and the under-participation trap," European Economic Review, Elsevier, vol. 51(7), pages 1661-1681, October.
  4. Booth, Alison L & Zoega, Gylfi, 2001. "Is Wage Compression a Necessary Condition for Firm-Financed General Training?," CEPR Discussion Papers 2845, C.E.P.R. Discussion Papers.
  5. Daron Acemoglu & Jorn-Steffen Pischke, 1998. "Beyond Becker: Training in Imperfect Labor Markets," NBER Working Papers 6740, National Bureau of Economic Research, Inc.
  6. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-73, May.
  7. V. Bhaskar & Ted To, 1996. "Minimum Wages for Ronald McDonald Monopsonies: A Theory of Monopsonistic Competition," Labor and Demography 9603001, EconWPA, revised 21 May 1996.
  8. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  9. Grout, Paul A, 1984. "Investment and Wages in the Absence of Binding Contracts: A Nash Bargining Approach," Econometrica, Econometric Society, vol. 52(2), pages 449-60, March.
  10. Acemoglu, Daron & Pischke, Jörn-Steffen, 1998. "The Structure of Wages and Investment in General Training," CEPR Discussion Papers 1833, C.E.P.R. Discussion Papers.
  11. Stewart, M.B., 1989. "Union Wage Differentials, Product Market Influences And The Division Of Rents," The Warwick Economics Research Paper Series (TWERPS) 323, University of Warwick, Department of Economics.
  12. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
  13. Walter Y. Oi, 1962. "Labor as a Quasi-Fixed Factor," Journal of Political Economy, University of Chicago Press, vol. 70, pages 538.
  14. Fitzenberger, Bernd & Kohn, Karsten & Lembcke, Alexander C., 2008. "Union Density and Varieties of Coverage: The Anatomy of Union Wage Effects in Germany," IZA Discussion Papers 3356, Institute for the Study of Labor (IZA).
  15. Alison L. Booth & Mark L. Bryan, 2005. "Testing Some Predictions of Human Capital Theory: New Training Evidence from Britain," The Review of Economics and Statistics, MIT Press, vol. 87(2), pages 391-394, May.
  16. Alan Manning & Ted To, 2002. "Oligopsony and Monopsonistic Competition in Labor Markets," Journal of Economic Perspectives, American Economic Association, vol. 16(2), pages 155-174, Spring.
  17. Stevens, Margaret, 1994. "A Theoretical Model of On-the-Job Training with Imperfect Competition," Oxford Economic Papers, Oxford University Press, vol. 46(4), pages 537-62, October.
  18. Wiji Arulampalam & Alison L. Booth & Mark L. Bryan, 2004. "Training and the new minimum wage," Economic Journal, Royal Economic Society, vol. 114(494), pages C87-C94, 03.
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