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Comment on 'minimum wages for Ronald McDonald monopsonies: a theory of monopsonistic competition'

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  • Frank Walsh

Abstract

Bhaskar and To (1999) develop a model of monopsonistic competition and solve explicitly for equilibrium. While a minimum wage set just above the unconstrained optimum leads firms to increase employment it also causes firm exit as profits fall. In this note I show that the employment and welfare effects of the minimum wage which Bhaskar and To had thought to be ambiguous when firm exit was accounted for are in fact unambiguously positive. The model can be adjusted so that the original ambiguous employment effect results. A decomposition is developed which allows us to calculate the long run employment effect.

Suggested Citation

  • Frank Walsh, 2003. "Comment on 'minimum wages for Ronald McDonald monopsonies: a theory of monopsonistic competition'," Open Access publications 10197/8050, School of Economics, University College Dublin.
  • Handle: RePEc:ucn:oapubs:10197/8050
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    File URL: http://hdl.handle.net/10197/8050
    File Function: Open Access version, 2003
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    Cited by:

    1. Strobl, Eric & Walsh, Frank, 2016. "Monopsony, minimum wages and migration," Labour Economics, Elsevier, vol. 42(C), pages 221-237.
    2. Webber, Douglas A., 2015. "Firm market power and the earnings distribution," Labour Economics, Elsevier, vol. 35(C), pages 123-134.
    3. Leo Kaas & Paul Madden, 2010. "Minimum wages and welfare in a Hotelling duopsony," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 43(2), pages 167-188, May.
    4. Strobl, Eric & Walsh, Frank, 2011. "The ambiguous effect of minimum wages on hours," Labour Economics, Elsevier, vol. 18(2), pages 218-228, April.
    5. 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.
    6. repec:ipg:wpaper:2014-069 is not listed on IDEAS
    7. Hristos Doucouliagos & T. D. Stanley, 2009. "Publication Selection Bias in Minimum-Wage Research? A Meta-Regression Analysis," British Journal of Industrial Relations, London School of Economics, vol. 47(2), pages 406-428, June.
    8. Moser, Christoph & Stähler, Nikolai, 2009. "Spillover effects of minimum wages in a two-sector search model," Discussion Paper Series 1: Economic Studies 2009,01, Deutsche Bundesbank.

    More about this item

    Keywords

    Monopsony; Minimum wages; Employment;

    JEL classification:

    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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