Holdup in Oligopsonistic Labour Markets: A New Role for the Minimum Wage

Leo Kaas and Paul Madden ()
Additional contact information
Paul Madden: University of Manchester

No 2043, IZA Discussion Papers from Institute of Labor Economics (IZA)

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.

Keywords: minimum wage; investment; holdup (search for similar items in EconPapers)
JEL-codes: D43 J48 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2006-03
New Economics Papers: this item is included in nep-lab and nep-ltv
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published - revised version published in: Labour Economics, 2008, 15 (3), 356-371

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Journal Article: Holdup in oligopsonistic labour markets - a new role for the minimum wage (2008)
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