Endogenous Monopsony and the Perverse Effect of the Minimum Wage in Small Firms

Leif Danziger ()

No 4320, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: The minimum wage rate has been introduced in many countries as a means of alleviating the poverty of the working poor. This paper shows, however, that an imperfectly enforced minimum wage rate causes small firms to face an upward-sloping labor supply schedule. Since this turns these firms into endogenous monopsonists, the minimum wage rate has the perverse effect of reducing employment in small firms as well as what these firms offer their workers. Thus, if there are only small firms, the minimum wage rate makes all workers that would be employed in the absence of a minimum wage rate worse off.

Keywords: noncompliance; minimum wage; endogenous monopsony; small firms (search for similar items in EconPapers)
JEL-codes: J38 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2009-07
New Economics Papers: this item is included in nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published - published in: Labour Economics, 2010, 17 (1), 224-229

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Related works:
Journal Article: Endogenous monopsony and the perverse effect of the minimum wage in small firms (2010)
Working Paper: Endogenous Monopsony and the Perverse Effect of the Minimum Wage in Small Firms (2009)
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