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Holdup in Oligopsonistic Labour Markets: A New Role for the Minimum Wage

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  • Kaas, Leo

    (Goethe University Frankfurt)

  • Madden, Paul

    (University of Manchester)

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.

Suggested Citation

  • Kaas, Leo & Madden, Paul, 2006. "Holdup in Oligopsonistic Labour Markets: A New Role for the Minimum Wage," IZA Discussion Papers 2043, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp2043
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    References listed on IDEAS

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    Cited by:

    1. Paul Madden, 2010. "Gametheoretic analysis of basic team sports leagues," Economics Discussion Paper Series 1006, Economics, The University of Manchester.
    2. Leo Kaas & Paul Madden, 2010. "Minimum wages and welfare in a Hotelling duopsony," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 43(2), pages 167-188, May.
    3. Danziger, Eliav & Danziger, Leif, 2018. "The Optimal Graduated Minimum Wage and Social Welfare," IZA Discussion Papers 11386, Institute of Labor Economics (IZA).
    4. Sofia Bauducco & Alexandre Janiak, 2015. "The Impact of the Minimum Wage on Capital Accumulation and Employment in a Large-Firm Framework," Working Papers Central Bank of Chile 755, Central Bank of Chile.
    5. F. Angel-Urdinola, Diego, 2008. "Can the Introduction of a Minimum Wage in FYR Macedonia Decrease the Gender Wage Gap?," Policy Research Working Paper Series 4795, The World Bank.
    6. Bauducco, Sofía & Janiak, Alexandre, 2018. "The macroeconomic consequences of raising the minimum wage: Capital accumulation, employment and the wage distribution," European Economic Review, Elsevier, vol. 101(C), pages 57-76.
    7. Jiménez Martínez, Mónica & Jiménez Martínez, Maribel, 2021. "Are the effects of minimum wage on the labour market the same across countries? A meta-analysis spanning a century," Economic Systems, Elsevier, vol. 45(1).
    8. Okumura, Yasunori, 2015. "Volume and share quotas in Cournot competition," Economic Modelling, Elsevier, vol. 47(C), pages 137-144.
    9. Eliav Danziger & Leif Danziger, 2018. "The Optimal Graduated Minimum Wage and Social Welfare," CESifo Working Paper Series 6943, CESifo.
    10. Kaas, Leo, 2010. "Human capital externalities with monopsonistic competition," Economics Letters, Elsevier, vol. 106(2), pages 95-97, February.
    11. Paul Madden, 2011. "Game Theoretic Analysis of Basic Team Sports Leagues," Journal of Sports Economics, , vol. 12(4), pages 407-431, August.
    12. Danziger, Eliav & Danziger, Leif, 2018. "The Optimal Graduated Minimum Wage and Social Welfare," GLO Discussion Paper Series 188, Global Labor Organization (GLO).
    13. Peng-Ju Su, Alice, 2020. "Information advantage and minimum wage," Information Economics and Policy, Elsevier, vol. 50(C).
    14. Angel-Urdinola, Diego F., 2008. "Can the introduction of a minimum wage in FYR Macedonia decrease the gender wage gap?," Social Protection Discussion Papers and Notes 46851, The World Bank.

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    More about this item

    Keywords

    minimum wage; investment; holdup;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • J48 - Labor and Demographic Economics - - Particular Labor Markets - - - Particular Labor Markets; Public Policy

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