Thorstein Veblen, Joan Robinson, and George Stigler (Probably) Never Met: Social Preferences, Monopsony, and Government Intervention

41 Pages Posted: 19 Feb 2020

See all articles by Laszlo Goerke

Laszlo Goerke

University of Trier - Institute of Labour Law and Industrial Relations in the European Union; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Michael Neugart

Technical University of Darmstadt

Date Written: January 23, 2020

Abstract

Wages and employment are too low in a monopsony. Furthermore, a minimum wage or a subsidy may raise employment up to its first-best level. First, we analyze whether these important predictions still hold if workers compare their income to that of a reference group. Second, we show that the undistorted, competitive outcome may no longer constitute the benchmark for welfare comparisons. Third, we derive a condition which guarantees that the monopsony distortion is exactly balanced by the impact of social comparisons. Finally, we show how wage restrictions and subsidies or taxes can be used to ensure this condition both for a welfarist and a paternalistic welfare objective.

Keywords: social preferences, government intervention, minimum wage, monopsony, taxation, wage regulation

JEL Classification: D10, H21, J30, J42

Suggested Citation

Goerke, Laszlo and Neugart, Michael, Thorstein Veblen, Joan Robinson, and George Stigler (Probably) Never Met: Social Preferences, Monopsony, and Government Intervention (January 23, 2020). Available at SSRN: https://ssrn.com/abstract=3524483 or http://dx.doi.org/10.2139/ssrn.3524483

Laszlo Goerke

University of Trier - Institute of Labour Law and Industrial Relations in the European Union ( email )

Behringstra├če 21, 7. Floor, Building H
Trier, 54296
Germany

HOME PAGE: http://www.iaaeu.de/

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

IZA Institute of Labor Economics

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

Michael Neugart (Contact Author)

Technical University of Darmstadt ( email )

Hochschulstra├če 1
Darmstadt, 64289
Germany

HOME PAGE: http://www.vwl3.wi.tu-darmstadt.de

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