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Office of Survey Methods Research
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Published Year: 2003
Survey/Program(s): Office of Prices and Living Conditions
Catalog: Economic Working Paper
WP Number: WP-369
Publication Status / Disposition: Available from the Office of Prices and Living Conditions (December 2003).
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Minimum Wages, Employment and Monopsonistic Competition
Abstract
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.