Employment Differentiation, Minimum Wages, and Firm Exit

Hernán Vallejo
Additional contact information
Hernán Vallejo: Universidad de los Andes

Revista Desarrollo y Sociedad, 2025, vol. 101, issue 1, 11-24

Abstract: The economic literature acknowledges that labor markets can often be described by monopsonistic competition. In such a structure, employers have market power and in the long run, zero profits due to the free entry and exit of firms. This article builds a partial equilibrium model to analyze the role of minimum wages when employment is differentiated. It shows that first-best and second-best minimum wages can increase employment and improve efficiency by reducing market power, at the expense of firm exit, higher concentration among employers, and less employment variety. As such, this article can provide insights into the ambiguous effect of minimum wages on employment levels systematically found in the literature, and on the higher firm exit rates observed among new, small, and lower productivity firms.

Keywords: Employment differentiation; residual supply of labor; firm exit; minimum wage (search for similar items in EconPapers)
JEL-codes: D21 J21 J31 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://revistas.uniandes.edu.co/index.php/dys/article/view/11055/11271
https://revistas.uniandes.edu.co/index.php/dys/article/view/11055/11271

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:col:000090:022174

DOI: 10.13043/DYS.101.1

Access Statistics for this article

More articles in Revista Desarrollo y Sociedad from Universidad de los Andes,Facultad de Economía, CEDE Contact information at EDIRC.
Bibliographic data for series maintained by Universidad De Los Andes-Cede ().