Sweatshops: the theory of the firm revisited

When the labor supply schedule is bending forward at low wage levels, the average cost curve of firms does the same. This leads to the possibility of multiple equilibria, in particular for monopolists, thereby opening a broader range of options and keeping non-profitable firms in business. However, the global maximum is always occuring along the negatively sloping segment of the labor supply. Therefore, total welfare is declining, except perhaps in the case of monopolists, when firms are pursuing a low-wage strategy to expand output and profits, and are exploiting labor's subsistence needs to pay wages below the marginal product.

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Year of publication:	2004
Authors:	Dessing, Maryke
Published in:	Journal of Economic Studies. - Emerald Group Publishing. - Vol. 31.2004, October, 6, p. 549-579
Publisher:	Emerald Group Publishing
Subject:	Developing countries \| Labour market \| Monopolies \| Poverty \| Small enterprises

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Extent:	text/html
Type of publication:	Article
Source:	RePEc - Research Papers in Economics