Asymmetric Labor Markets, Southern Wages, and the Location of Firms

37 Pages Posted: 3 Feb 2005

See all articles by Alireza Naghavi

Alireza Naghavi

University of Bologna - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: January 2005

Abstract

This paper studies the behavior of firms towards weak labor rights in developing countries (South). A less than perfectly elastic labor supply in the South gives firms oligopsonistic power tempting them to strategically reduce output to cut wages. In an open economy, competitors operating in perfectly competitive labor markets meanwhile enjoy less aggressive competitors and raise output. Finally, competition effect reduces the ex-post output of a relocating firm. These effects reduce relative profitability of the South casting doubts on traditional beliefs that multinationals are attracted to regions with lower wages. Adopting a minimum wage unambiguously enhances Southern competitiveness and welfare.

Keywords: Labor standards, Labor market imperfection, Oligopsony, Location of firms, Minimum wages, Strategic behavior, Multinationals, Southern welfare

JEL Classification: J80, F23, J42, F12, R38, L13

Suggested Citation

Naghavi, Alireza, Asymmetric Labor Markets, Southern Wages, and the Location of Firms (January 2005). FEEM Working Paper No. 17.05. Available at SSRN: https://ssrn.com/abstract=657263 or http://dx.doi.org/10.2139/ssrn.657263

Alireza Naghavi (Contact Author)

University of Bologna - Department of Economics ( email )

Piazza Scaravilli 2
Bologna, 40126
Italy

HOME PAGE: http://alirezanaghavi.altervista.org/

Register to save articles to
your library

Register

Paper statistics

Downloads
51
Abstract Views
1,159
rank
331,985
PlumX Metrics