Minimum Wages for Ronald McDonald Monopsonies: A Theory of Monopsonistic Competition

V Bhaskar and Ted To

Labor and Demography from University Library of Munich, Germany

Abstract: Recent empirical work on the effects of minimum wages has called into question the conventional wisdom that minimum wages invariably reduce employment. We develop a model of \emph{monopsonistic competition} with \emph{free entry} to analyze the effects of minimum wages, and our predictions fit the empirical results closely. Under monopsonistic competition, we find that a rise in the minimum wage a) raises employment per firm, b) causes firm exit, c) may increase or reduce industry employment. Minimum wages increase welfare if they raise industry employment, but welfare effects are ambiguous if employment falls. Industry price and employment are inversely related if the product market is competitive. However, if firms have product market power, a minimum wage which raises industry employment can also increase prices.

Keywords: labor theory; minimum wage; monopsony; oligopsony; monopsonistic competition. (search for similar items in EconPapers)
JEL-codes: J23 J42 L13 (search for similar items in EconPapers)
Pages: 30 pages
Date: 1996-03-25, Revised 1998-08-06
Note: Type of Document - LaTex generated DVI file; to print on Any; pages: 30 ; figures: included
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Related works:
Journal Article: Minimum Wages for Ronald McDonald Monopsonies: A Theory of Monopsonistic Competition (1999)
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