Workers as Partners: a Theory of Responsible Firms in Labor Markets

Francesco Del Prato () and Marc Fleurbaey ()
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Francesco Del Prato: Aarhus University [Aarhus]
Marc Fleurbaey: PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement

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Abstract: We develop a theoretical framework analyzing responsible firms (REFs) that prioritize worker welfare alongside profits in labor markets with search frictions. At the micro level, REFs' use of market power varies with labor conditions: they refrain from using it in slack markets but may exercise it in tight markets without harming workers. Our macro analysis shows these firms offer higher wages, creating a distinct high-wage sector. When firms endogenously choose worker bargaining power, there is a trade-off between worker surplus and employment, though this improves with elastic labor supply. While REFs cannot survive with free entry, they can coexist with profit-maximizing firms under limited competition, where their presence forces ordinary firms to raise wages.

Keywords: Corporate social responsibility; Search model; Labor market; Monopsony power (search for similar items in EconPapers)
Date: 2024-11
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-04788058v1
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