Monopsony in the Labor Market, Minimum Wages and the Time Horizon: Some Unresolved Issues

Friedrich L. Sell () and Ernst K. Ruf ()
Additional contact information
Friedrich L. Sell: Universität der Bundeswehr München
Ernst K. Ruf: UniCredit Group

Atlantic Economic Journal, 2016, vol. 44, issue 1, No 5, 75-90

Abstract: Abstract This article discusses development of optimal solutions for monopsony in the labour market for the long run (when labour and capital are both flexible). It is shown that binding minimum wages up to a certain degree pushes the monopsonists to choose a high capital intensity of production, just as high as or even higher than that chosen when there is no regulation for minimum wages. Thereby, we demonstrate the existence of re-switching effects in the tradition of Piero Sraffa. The second part of the paper recalculates and analyzes earlier results by making use of the rather general constant elasticity of substitution production function. Based on a numerical solution for optimal monopsony under different regimes (no minimum wage, minimum wages of different values, etc.), we formulate a two-period game between the government and the monopsonistic firm (‘minimum wage game’). Finally, we analyze the relationship between the elasticity of substitution on the one hand and likely levels of employment on the other hand, after introduction of minimum wages.

Keywords: Labour market; Monopsony; Elasticity of substitution; J38; J40; J42; J48 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://link.springer.com/10.1007/s11293-016-9484-8 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:atlecj:v:44:y:2016:i:1:d:10.1007_s11293-016-9484-8

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/11293/PS2

DOI: 10.1007/s11293-016-9484-8

Access Statistics for this article

Atlantic Economic Journal is currently edited by Kathleen S. Virgo

More articles in Atlantic Economic Journal from Springer, International Atlantic Economic Society Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().