Getting It Right: Employment Subsidy or Minimum Wage?

Eric Strobl () and Frank Walsh

No 662, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: In monopsony models of the labour market either a minimum wage or an employment subsidy financed by a lump sum tax on profits can achieve the efficient level of employment and output. Incorporating working conditions into a monopsony model where higher wages raise firm labour supply, but less attractive working conditions reduce it, changes these policy implications. Specifically, a minimum wage policy could, in contrast to an employment subsidy, cause working conditions to deteriorate and welfare to fall. Empirical evidence from the Republic of Trinidad and Tobago shows that a minimum wage may indeed cause working conditions to worsen.

Keywords: minimum wage; working conditions; monopsony models (search for similar items in EconPapers)
JEL-codes: J2 J3 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2002-12
New Economics Papers: this item is included in nep-lab
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Citations: View citations in EconPapers (5)

Published - revised version published as "Dealing with Monopsony Power: the Case for Employment Subsidies" in: Economics Letters, 2007, 94 (1), 83-89

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