Monopsony in the Labor Market, Minimum Wages and the Time Horizon: Some Unresolved Issues

This article discusses development of optimal solutions for monopsony in the labour market for the long run (when labour and capital are both flexible). It is shown that binding minimum wages up to a certain degree pushes the monopsonists to choose a high capital intensity of production, just as hig...

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Bibliographic Details
Published inAtlantic economic journal Vol. 44; no. 1; pp. 75 - 90
Main Authors Sell, Friedrich L., Ruf, Ernst K.
Format Journal Article
LanguageEnglish
Published New York Springer US 01.03.2016
Springer
Springer Nature B.V
Subjects
Competition
Decision making
Economic models
Economic statistics
Economic theory
Economics
Economics and Finance
Elasticity
Employment
International Economics
Labor economics
Labor market
Labor supply
Labour economics
Labour market
Macroeconomics/Monetary Economics//Financial Economics
Microeconomics
Minimum wage
Minimum wages
Monopolies
Monopsony
Production
Production functions
Profits
Public Finance
Regulation
Statistics
Studies
Values
Wage rates
Wages
Wages & salaries
United States
Germany
Labour market
J40
J42
Monopsony
J38
Elasticity of substitution
J48
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Summary:This article discusses development of optimal solutions for monopsony in the labour market for the long run (when labour and capital are both flexible). It is shown that binding minimum wages up to a certain degree pushes the monopsonists to choose a high capital intensity of production, just as high as or even higher than that chosen when there is no regulation for minimum wages. Thereby, we demonstrate the existence of re-switching effects in the tradition of Piero Sraffa. The second part of the paper recalculates and analyzes earlier results by making use of the rather general constant elasticity of substitution production function. Based on a numerical solution for optimal monopsony under different regimes (no minimum wage, minimum wages of different values, etc.), we formulate a two-period game between the government and the monopsonistic firm (‘minimum wage game’). Finally, we analyze the relationship between the elasticity of substitution on the one hand and likely levels of employment on the other hand, after introduction of minimum wages.
Bibliography:ObjectType-Article-1
SourceType-Scholarly Journals-1
ObjectType-Feature-2
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ISSN:0197-4254
1573-9678
DOI:10.1007/s11293-016-9484-8