Oligopsony and the Distribution of Wages

Abstract:     
We propose a simple model of wage dispersion arising from oligopsonistic competition in the labor market. Our model has workers who are equally able but who have heterogeneous preferences for non-wage characteristics, while employers have heterogeneous productivity characteristics. We completely and explicitly solve for the equilibrium wage distribution and show that "inside" and "outside" forces interact in wage determination. This interaction generates spillover effects of minimum wages in a manner which is consistent with the empirical evidence.

Number of Pages in PDF File: 32

Keywords: wage differentials, wage dispersion, monopsony, oligopsony, labor theory, minimum wage

JEL Classification: J23, J42, L13

working papers series