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Monopsony and the efficiency of labour market interventions

Centre for Economic Performance, London School of Economics and Political Science
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  • Hd Industries. Land Use. Labor
  • Economics


Implicit in many discussions of labour market policy is the assumption that, in the absence of interventions, the operation of the labour market is well-approximated by the perfectly competitive model. The merits or demerits of particular policies is then seen as a trade-off between efficiency and equality. This paper analyses the impact of a variety of policies û the minimum wage, trade unions, unemployment insurance, progressive income taxation and restrictions on labour contracts û on efficiency when labour markets in the absence of intervention are monopsonistic and not perfectly competitive. A simple version of the Burdett and Mortensen (1998) model is used for this purpose.

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