Holdup in Oligopsonistic Labour Markets: A New Role for the Minimum Wage

Leo Kaas () and Paul Madden ()
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Paul Madden: University of Manchester

No 2043, IZA Discussion Papers from Institute for the Study of Labor (IZA)

Abstract: We consider a labour market model of oligopsonistic wage competition and show that there is a holdup problem although workers do not have any bargaining power. When a firm invests more, it pays a higher wage in order to attract workers from competitors. Because workers participate in the returns on investment while only firms bear the costs, investment is inefficiently low. A binding minimum wage can achieve the first-best level of investment, both in the short run for a given number of firms and in the long run when the number of firms is endogenous.

Keywords: holdup; investment; minimum wage (search for similar items in EconPapers)
JEL-codes: D43 J48 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-lab and nep-ltv
Date: 2006-03
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Journal Article: Holdup in oligopsonistic labour markets - a new role for the minimum wage (2008)
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