Citation

Discussion Paper Details

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Title: The Distribution of Earnings under Monopsonistic/polistic Competition

Author(s): Jacques-Fran�ois Thisse and Eric Toulemonde

Publication Date: September 2010

Keyword(s): labor exploitation, monopolistic competition, monopsonistic competition, wage dispersion and worker heterogeneity

Programme Area(s): Industrial Organization and Labour Economics

Abstract: Recent empirical contributions in labor economics suggest that individual firms face upward sloping labor supplies. We rationalize this by assuming that idiosyncratic non-pecuniary conditions interact with money wages in workers? decisions to work for specific firms. Likewise, firms supply differentiated goods in response to differences in consumer tastes. Hence, firms are price-makers and wage-setters. By combining monopolistic and monopsonistic competition, our setting captures general equilibrium interactions between the two markets. The equilibrium involves double exploitation of labor. Compared to the competitive outcome, the high-productive workers are overpaid under free entry, whereas the low-productive workers are underpaid. In the same vein, capital-owners receive a premium, whereas workers are exploited.

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Bibliographic Reference

Thisse, J and Toulemonde, E. 2010. 'The Distribution of Earnings under Monopsonistic/polistic Competition'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=7981