Minimum Wages for Ronald McDonald Monopsonies: A Theory of Monopsonistic CompetitionLabor and Demography from EconWPA Abstract: Recent empirical work on the effects of minimum wages has called into question the conventional wisdom that minimum wages invariably reduce employment. We develop a model of \emph{monopsonistic competition} with \emph{free entry} to analyze the effects of minimum wages, and our predictions fit the empirical results closely. Under monopsonistic competition, we find that a rise in the minimum wage a) raises employment per firm, b) causes firm exit, c) may increase or reduce industry employment. Minimum wages increase welfare if they raise industry employment, but welfare effects are ambiguous if employment falls. Industry price and employment are inversely related if the product market is competitive. However, if firms have product market power, a minimum wage which raises industry employment can also increase prices. Keywords: labor theory; minimum wage; monopsony; oligopsony; monopsonistic competition. (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpla:9603001 Access Statistics for this paper More papers in Labor and Demography from EconWPA |
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