When employers face a trade-off between growing large and paying low wages - that is, when they have monopsony power - some productive employers will decide to acquire fewer customers, forgo sales, and remain small. These decisions have adverse consequences for aggregate labor productivity....

When employers face a trade-off between growing large and paying low wages - that is, when they have monopsony power - some productive employers will decide to acquire fewer customers, forgo sales, and remain small. These decisions have adverse consequences for aggregate labor productivity....

We develop a general equilibrium model of monopolistic competition with a traded and a non-traded sector. Using a broad class of homothetic preferences - that generate variable markups, display a simple behavior of their elasticity of substitution, and nest the ces as a limiting case - we show...