Wage determination under imperfect competition

This study empirically analyses the relationship between market imperfections and wage growth in the Indian manufacturing sector, underscoring rising inequality and unemployment in the sector. Using concentration indices, Kaleckian “mark-up,” and wage rate, relationships between market concentration, monopoly power, and wage growth are examined. A panel data analysis shows that the impact of market competition on industry wage structure is dialectical: firms with higher market power pay higher wages compared to competitors; however, if the market power translated into a monopoly position, then the company may resort to cost-cutting, leading to relatively decreasing wage growth. The panel regression shows that, other things held constant, fewer firms with prudential regulation for monopoly power would lead to higher wage growth.

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