Discrimination as Collusion in Imperfectly Competitive Labour Markets

Abstract

ABSTRACT: Despite growing evidence on the potential influence of monopsony power in modern labour markets, the standard monopsony theory of discrimination, at least with respect to pay differences by gender, is inconsistent with the empirical evidence on the association between relative pay and comparative labour supply elasticities. In this paper, we develop a general oligopsony model in which we argue that differences in the conjectural variation parameter can reconcile the empirical evidence with a model of discrimination based on imperfect competition in the labour market. Discrimination emerges from asymmetric collusion in the presence of employer power, without the need to incorporate a Beckerian‘taste for discrimination’parameter.