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Dealing with monopsony power: Employment subsidies vs. minimum wages

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  • Eric Strobl
  • Frank Walsh

Abstract

We show in a monopsony model that accounting for changes in hours a minimum wage has ambiguous effects on employment and welfare. When all workers have the same preference ordering over leisure and consumption employment subsidies unambiguously improve welfare. Many countries have minimum wages and also tax minimum wage workers.

Suggested Citation

  • Eric Strobl & Frank Walsh, 2007. "Dealing with monopsony power: Employment subsidies vs. minimum wages," Open Access publications 10197/8055, School of Economics, University College Dublin.
    • Handle: RePEc:ucn:oapubs:10197/8055
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    File URL: http://hdl.handle.net/10197/8055
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    References listed on IDEAS

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    12. David Neumark & DMark Schweitzer & DaWilliam Wascher, 2004. "Minimum Wage Effects throughout the Wage Distribution," Journal of Human Resources, University of Wisconsin Press, vol. 39(2).
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    23. Strobl, Eric & Walsh, Frank, 2002. "Getting It Right: Employment Subsidy or Minimum Wage?," IZA Discussion Papers 662, Institute of Labor Economics (IZA).
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    Citations

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    Cited by:

    1. Eliav Danziger & Leif Danziger, 2018. "The Optimal Graduated Minimum Wage and Social Welfare," CESifo Working Paper Series 6943, CESifo.
    2. Laszlo Goerke & Michael Neugart, 2021. "Social preferences, monopsony and government intervention," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(2), pages 864-891, 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. Strobl, Eric & Walsh, Frank, 2011. "The ambiguous effect of minimum wages on hours," Labour Economics, Elsevier, vol. 18(2), pages 218-228, April.
    5. Eric Strobl & Frank Walsh, 2010. "The minimum wage and hours per worker," Working Papers 201028, School of Economics, University College Dublin.
    6. Eric Strobl & Frank Walsh, 2007. "The Ambiguous Effect of Minimum Wages on Workers and Total Hours," Working Papers 200714, School of Economics, University College Dublin.
    7. Danziger, Eliav & Danziger, Leif, 2018. "The Optimal Graduated Minimum Wage and Social Welfare," GLO Discussion Paper Series 188, Global Labor Organization (GLO).
    8. Peng-Ju Su, Alice, 2020. "Information advantage and minimum wage," Information Economics and Policy, Elsevier, vol. 50(C).
    9. Cai Yujie & Li Xiuyu & Tao Yuhong, 2020. "Comparative Analysis of Minimum Wage in Five Provinces in Northwest China," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 12(1), pages 1-1, January.

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    More about this item

    Keywords

    Monopsony; Minimum wages; Hours worked; Productivity;
    All these keywords.

    JEL classification:

    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • J48 - Labor and Demographic Economics - - Particular Labor Markets - - - Particular Labor Markets; Public Policy

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