Title: Monopoly, Employment and Wages
Reference Number: 1019
Publication Date: January 2001
JEL Classifcation: D42, E24, J60, L10

Chung Yi Tse
The University of Hong Kong

This paper shows that monopoly in the capital equipment market results in higher productivity and wages but lower employment relative to the benchmark of competition. The combined effect on workers' welfare is negative for expected earnings, defined as the product of the probability of employment and the wage earned when employed, is lowered. More interestingly, the declines in employment and expected earnings are greater for low skill workers. Increases in the relative supply of high skill workers intensify the declines. The employment and expected earnings of all workers as well as the employment of low skill workers relative to high skill workers are all decreasing in the relative supply of high skill workers.

Published in Labour Economics 9 (2002), pp. 681-697.

Key words: monopoly pricing, wages, unemployment, job-matching

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Last modified: 01/23/2007