DP7981 The Distribution of Earnings under Monopsonistic/polistic Competition
Author(s): | Jacques-François Thisse, Eric Toulemonde |
Publication Date: | September 2010 |
Keyword(s): | labor exploitation, monopolistic competition, monopsonistic competition, wage dispersion, worker heterogeneity |
JEL(s): | D33, J31, J42, J71, L13 |
Programme Areas: | Labour Economics, Industrial Organization |
Link to this Page: | cepr.org/active/publications/discussion_papers/dp.php?dpno=7981 |
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.