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The Distribution of Earnings Under Monopsonistic/Polistic Competition

18 Pages Posted: 25 Aug 2010  

Jacques-François Thisse

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE); Centre for Economic Policy Research (CEPR)

Eric Toulemonde

IZA Institute of Labor Economics; Facultés Universitaires Notre-Dame de la Paix (FUNDP) - Faculty of Economics, Management and Social Sciences

Multiple version iconThere are 2 versions of this paper

Date Written: September 2010

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.

Keywords: labor exploitation, monopolistic competition, monopsonistic competition, wage dispersion, worker heterogeneity

JEL Classification: D33, J31, J42, J71, L13

Suggested Citation

Thisse, Jacques-François and Toulemonde, Eric, The Distribution of Earnings Under Monopsonistic/Polistic Competition (September 2010). CEPR Discussion Paper No. DP7981. Available at SSRN: https://ssrn.com/abstract=1664912

Jacques-François Thisse (Contact Author)

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE) ( email )

34 Voie du Roman Pays
B-1348 Louvain-la-Neuve, b-1348
Belgium
+32 10 47 4312 (Phone)
+32 10 47 4301 (Fax)

HOME PAGE: http://www.core.ucl.ac.be/staff/thisse.html

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Eric Toulemonde

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Facultés Universitaires Notre-Dame de la Paix (FUNDP) - Faculty of Economics, Management and Social Sciences ( email )

Rempart de la Vierge 8
B-5000 Namur
Belgium
+32 81 725 313 (Phone)
+32 81 724 840 (Fax)

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