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Rent sharing, wage floors, and development

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  • Joshua Budlender
  • Ihsaan Bassier

Abstract

Faced with more favourable demand conditions, many firms raise wages. However, we show that firms with labour market power, lower productivity, and binding wage floors will absorb these positive revenue productivity shocks as excess profits instead of increasing wages or employment. Our prediction follows from a simple but novel theoretical insight under a standard framework of monopsonistic competition, and we empirically test this theory in South Africa using firm-level administrative data.

Suggested Citation

  • Joshua Budlender & Ihsaan Bassier, 2023. "Rent sharing, wage floors, and development," WIDER Working Paper Series wp-2023-132, World Institute for Development Economic Research (UNU-WIDER).
    • Handle: RePEc:unu:wpaper:wp-2023-132
    as

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    References listed on IDEAS

    as
    1. David Card & Ana Rute Cardoso & Joerg Heining & Patrick Kline, 2018. "Firms and Labor Market Inequality: Evidence and Some Theory," Journal of Labor Economics, University of Chicago Press, vol. 36(S1), pages 13-70.
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    7. Joshua Budlender & Amina Ebrahim, 2020. "Industry classification in the South African tax microdata," WIDER Working Paper Series wp-2020-99, World Institute for Development Economic Research (UNU-WIDER).
    8. Manudeep Bhuller & Karl Ove Moene & Magne Mogstad & Ola L. Vestad, 2022. "Facts and Fantasies about Wage Setting and Collective Bargaining," Journal of Economic Perspectives, American Economic Association, vol. 36(4), pages 29-52, Fall.
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    More about this item

    Keywords

    Rent-sharing; Monopsony; Minimum wage; Firm productivity;
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