DOI: 10.1093/jeea/jvag065 ISSN: 1542-4766
National Wage Contracts, Monopsony, and Welfare in a North-South Economy,
Emanuele Ciani, Alberto Dalmazzo, Guido de BlasioAbstract
In countries characterized by significant geographical disparities in productivity, nationwide labour contracts may cause local unemployment by preventing the adjustments that would occur in a competitive labour market. Here we argue, however, that when there are mobility frictions and monopsony power, nationwide contracts may still be preferable to local contracts. Using a spatial general equilibrium model calibrated on the Italian North-South divide, we suggest that nationwide wage contracts may still lead to narrower regional welfare gaps if monopsony power is sufficiently strong in low-productivity areas.