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

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  • Bhaskar, V
  • To, Ted

Abstract

Recent empirical work on the effects of minimum wages has called into question the conventional wisdom that minimum wages invariably reduce employment. The authors develop a model of monopsonistic competition with free entry to analyze the effects of minimum wages and their predictions fit the empirical results closely. Under monopsonistic competition, they find that a rise in the minimum wage raises employment per firm, causes firm exit, and may increase or reduce industry employment. Minimum wages increase welfare if they raise industry employment but welfare effects are ambiguous if employment falls.

Suggested Citation

  • Bhaskar, V & To, Ted, 1999. "Minimum Wages for Ronald McDonald Monopsonies: A Theory of Monopsonistic Competition," Economic Journal, Royal Economic Society, vol. 109(455), pages 190-203, April.
    • Handle: RePEc:ecj:econjl:v:109:y:1999:i:455:p:190-203
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    References listed on IDEAS

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    1. David Card, 1992. "Using Regional Variation in Wages to Measure the Effects of the Federal Minimum Wage," ILR Review, Cornell University, ILR School, vol. 46(1), pages 22-37, October.
    2. David Card & Alan B. Krueger, 1997. "A Reanalysis of the Effect of the New Jersey Minimum Wage Increase on the Fast-Food Industry with Representative Payroll Data," Working Papers 772, Princeton University, Department of Economics, Industrial Relations Section..
    3. Card, David & Krueger, Alan B, 1994. "Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania," American Economic Review, American Economic Association, vol. 84(4), pages 772-793, September.
    4. Lawrence F. Katz & Alan B. Krueger, 1992. "The Effect of the Minimum Wage on the Fast-Food Industry," ILR Review, Cornell University, ILR School, vol. 46(1), pages 6-21, October.
    5. William M. Boal & Michael R. Ransom, 1997. "Monopsony in the Labor Market," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 86-112, March.
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    8. Rebitzer, James B. & Taylor, Lowell J., 1995. "The consequences of minimum wage laws Some new theoretical ideas," Journal of Public Economics, Elsevier, vol. 56(2), pages 245-255, February.
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    10. Lawrence Katz & Alan Krueger, 1992. "The Effect of the Minimum Wage on the Fast Food Industry," Working Papers 678, Princeton University, Department of Economics, Industrial Relations Section..
    11. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
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    16. Alan B. Krueger, 1991. "Ownership, Agency, and Wages: An Examination of Franchising in the Fast Food Industry," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(1), pages 75-101.
    17. Stephen Machin & Alan Manning, 1994. "The Effects of Minimum Wages on Wage Dispersion and Employment: Evidence from the U.K. Wages Councils," ILR Review, Cornell University, ILR School, vol. 47(2), pages 319-329, January.
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    More about this item

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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