Rent sharing, wage floors, and development

Joshua Budlender and Ihsaan Bassier

No wp-2023-132, WIDER Working Paper Series from World Institute for Development Economic Research (UNU-WIDER)

Abstract: Faced with more favourable demand conditions, many firms raise wages. However, we show that firms with labour market power, lower productivity, and binding wage floors will absorb these positive revenue productivity shocks as excess profits instead of increasing wages or employment. Our prediction follows from a simple but novel theoretical insight under a standard framework of monopsonistic competition, and we empirically test this theory in South Africa using firm-level administrative data.

Keywords: Rent-sharing; Monopsony; Minimum wage; Firm productivity (search for similar items in EconPapers)
Date: 2023
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