Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/33401
Authors: 
Kaas, Leo
Madden, Paul
Year of Publication: 
2006
Series/Report no.: 
IZA Discussion Papers 2043
Abstract: 
We consider a labour market model of oligopsonistic wage competition and show that there is a holdup problem although workers do not have any bargaining power. When a firm invests more, it pays a higher wage in order to attract workers from competitors. Because workers participate in the returns on investment while only firms bear the costs, investment is inefficiently low. A binding minimum wage can achieve the first-best level of investment, both in the short run for a given number of firms and in the long run when the number of firms is endogenous.
Subjects: 
holdup
investment
minimum wage
JEL: 
D43
J48
Document Type: 
Working Paper

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