Holdup in oligopsonistic labour markets - a new role for the minimum wage

Leo Kaas and Paul Madden

Labour Economics, 2008, vol. 15, issue 3, 334-349

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.

Date: 2008
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Working Paper: Holdup in Oligopsonistic Labour Markets: A New Role for the Minimum Wage (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:labeco:v:15:y:2008:i:3:p:334-349

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