Minimum Wages in a Symmetric Model of Monopsonistic Competition

V Bhaskar and Ted To

No 548, Economics Discussion Papers from University of Essex, Department of Economics

Abstract: We reconsider the employment effect of a minimum wage on employment in a symmetric model of monopsonistic competition, where each employer competes equally with every other employer. The employment effect depends on the degree of distortion in the labor market. If fixed costs are high (low), the labor market is relatively non-competitive (competitive) and minimum wages increase (decrease) employment. This contrasts with the results of a Salop style model where a minimum wage unambiguously raises employment. We also find that the welfare effect of a small minimum wage is unambiguously positive.

Date: 2002-11-21
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