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

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Nota di Lavoro ; No. 17.2005

Classification and Topics

• Classification: Wirtschaft ; Labor Standards: General ; Multinational Firms; International Business ; Monopsony; Segmented Labor Markets ; Models of Trade with Imperfect Competition and Scale Economies; Fragmentation ; Production Analysis and Firm Location: Government Policy ; Oligopoly and Other Imperfect Markets
• Subject: Labor standards ; Labor market imperfection ; Oligopsony ; Location of firms ; Minimum wages ; Strategic behavior ; Multinationals ; Southern welfare

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Naghavi, Alireza
• Event: Veröffentlichung
• (who): Fondazione Eni Enrico Mattei (FEEM)
• (where): Milano
• (when): 2005

Further information

• Handle: http://hdl.handle.net/10419/74021
• Last update: 10.03.2025, 11:43 AM CET