Abstract
Bhaskar, V. and Ted To (2003) "Minimum Wages,
Employment and Monopsonistic Competition."
We set out a model of monopsonistic competition, where each employer competes equally with
every other employer. The employment effects of minimum wages depend on
the degree of distortion in the labor market. If fixed costs per firm
are high then the labor market is relatively non-competitive and minimum wages
increase employment. Conversely, low fixed costs make for a more
competitive labor market where minimum wages reduce employment. This
contrasts with the results of a Salop style model with localized employer
competition where a minimum wage unambiguously raises employment. We
also find that the welfare effect of a small minimum wage is unambiguously
positive.
Last Modified Date: July 19, 2008
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