Holdup in oligopsonistic labour markets - a new role for the minimum wage |
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Authors: | Leo Kaas Paul Madden |
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Affiliation: | aDepartment of Economics, University of Konstanz, Box D145, 78457 Konstanz, Germany;bSchool of Economic Studies, Manchester University, Manchester M13 9PL, UK |
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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. |
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Keywords: | Holdup Investment Minimum wage |
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