The Distribution of Earnings under Monopsonistic/polistic Competition

Jacques Thisse and Eric Toulemonde

No 7981, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Recent empirical contributions in labor economics suggest that individual firms face upward sloping labor supplies. We rationalize this by assuming that idiosyncratic non-pecuniary conditions interact with money wages in workers? decisions to work for specific firms. Likewise, firms supply differentiated goods in response to differences in consumer tastes. Hence, firms are price-makers and wage-setters. By combining monopolistic and monopsonistic competition, our setting captures general equilibrium interactions between the two markets. The equilibrium involves double exploitation of labor. Compared to the competitive outcome, the high-productive workers are overpaid under free entry, whereas the low-productive workers are underpaid. In the same vein, capital-owners receive a premium, whereas workers are exploited.

Keywords: Worker heterogeneity; Monopsonistic competition; Monopolistic competition; Labor exploitation; Wage dispersion (search for similar items in EconPapers)
JEL-codes: D33 J31 J42 J71 L13 (search for similar items in EconPapers)
Date: 2010-09
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Citations: View citations in EconPapers (5)

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Working Paper: The Distribution of Earnings under Monopsonistic/polistic Competition (2010)
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