6.4 Imperfecly Competitive Labour Marrkets Flashcards
Just as in the case of the goods market, real world labour markets are all imperfectly competitive - some to a lesser degree and some to a greater degree. We use the perfectly competitve labour mrket structure as a benchmark refrence point to analyse re al world labour markets. What is a MONOPSONY? Monopsony shows what about the buyer in both a goods and labour market? In a pure monopsonistic labour market can workers choose between different employers? Why can/can’t they? Example of a pure monoposony - think national defense/ who protects the country? Many firms can excercise a high degree of WHAT in which they hire workers? Define the term.
Monopsony refers to a situation in which there are DOMINANT buyers/employers but not a pure monopsony.
a) A monopsony is where there is only ONE buyer in the market (i.e. a single firm employing labour in the market).
b) Monopsony is a term used to describe powerful buyers in the product market and/or labour market.
c) In a monopsonistic labour market workers cannot choose between different employers. They can’t do this becasue in that market there in only ONE buyer/employer!
d) E.g. Armed forces/army.
e) High degree of ‘monopsony power’ - defined as the market power excercised in a market by the BUYER of a good or the servieces of a factor of production such as labour despite the firm NOT being a pure monopsonist. NHS has GREAT degree of monopsony power - although it’s not a pure monopsony, it is certainly a dominant employer/buyer in the healthcare industry based in the UK.
We shall now look at determination of relative wage rates and levels of employment in a monopsony labour market. Is a monopsonits a wage maker or wage taker? Why is the marginal cost of labour greater than the avergae cost of labour in a monopsony? At which point does a monopsonist employer employ workers - think about at which point profits shall be maximised. In a competitive labour market, where is the wage rate in relation to the wage rate offered by a monopsony? Is employment by a monopsonist reduced or raised in relation to a competitive labour market? Monopsonist labour markets distort efficient labour market outcomes!
a) A wage maker due its ability to excercise monopsony power in a labour market.
b) Because if a monopsony wants to increase its labour force it must raise the wage rate and pay the new wage rate not only to the workers they’ve employed but also the workers already incumbent/present in the firm.
c) The point where Marginal cost of labour = marginal revenue, product of labour.
d) Wage rate is HIGHER because the wage rate is determined by the point in which demand for labour = supply of labour. Firms are wage takers.
e) Reduced. Wages are also lowered. For a monopsonist labour market.
Reasons for wage differences in imperfectly competitve labour markets. There are 4 reasons.
Explain occupational immobility of labour. Workers are not homogeneous - so differences in natural ability can do WHAT to the movement of an individual between jobs? Why do some professions with high skill requirements mean wages are high? Think about the supply of labour is high requirement/training periods can EXCLUDE workers from joining the labour market.
a) Occupational immobility of labour is where workers are UNABLE to move from one type of job to another type of job because of the skills they require in order to take up the other profession. Workers are essentially prevented from entering that labour market/ moving between jobs. Skills required EXCLUDE workers from a labour market. This pushes supply DOWN as a result. This therefore, pushes wages UP.
Geographical immobility of labour is another reason for labour differences in labour markets. Define/explain geographical immobility of labour.
a) When workers are UNABLE to move from one area to another in search of work.
