Monopsony with nominal rigidities: An inverted Phillips Curve

Charles Dennery

Economics Letters, 2020, vol. 191, issue C

Abstract: With nominal wage rigidities, it is crucial to distinguish whether wages are set by workers or firms — whether we have monopoly or monopsony power. This paper provides a model of monopsony power in the labour market and a monopsonistic Phillips Curve. If wages are set by firms who face nominal rigidities, and there is inflation, firms cannot adjust their wages fully. The real wage falls, and labour supply hence output decreases. This provides a Phillips Curve where the output gap is negatively correlated with wage inflation. In such a world monetary policy affects the intertemporal labour supply, while the Phillips Curve is a labour demand curve. Interest rate cuts reduce the labour supply instead of boosting demand: they are contractionary.

Keywords: Monopsony; Nominal rigidities; Phillips curve (search for similar items in EconPapers)
JEL-codes: E24 E52 J42 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Working Paper: Monopsony with nominal rigidities: An inverted Phillips Curve (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:191:y:2020:i:c:s0165176520301038

DOI: 10.1016/j.econlet.2020.109124

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