Monopsony and Discrimination in the Solow-Stiglitz Growth Model

This chapter, Monopsony and Discrimination in the Solow-Stiglitz Growth Model, makes a contribution to the literature by integrating monopsony theory with Walrasian general equilibrium theory and neoclassical growth theory. It frames the model within the Solow-Stiglitz two-group growth model. The economy is composed of one sector (like in the Solow model) and two groups of households (like in the Stiglitz model). The modeling framework is closely related to Walrasian general equilibrium. This chapter is organized as follows. Section 13.1 develops the growth model of wealth and income distribution among heterogeneous households with endogenous social status. Section 13.2 examines the dynamic properties of the model and simulates the model with three groups. Section 13.3 follows the motion of the system when the total factor productivity is increased. Section 13.4 shows how the system is affected when the discriminated group’s human capital is enhanced. Section 13.5 examines the impact of an increase in the discriminatory household’s human capital. Section 13.6 plots the system when the discriminated population is enhanced. Section 13.7 studies the effects of a rise in the discriminated group’s propensity to save. Section 13.8 studies how the system is affected when the discriminated group enhances the propensity to use leisure time. Section 13.9 compares the behavior of the system in monopsony with those in perfect competition.