6.4 Imperfectly Competitive Labour Markets Flashcards
What is a monopsony?
There is only one buyer of labour in the market
What is monopsony power?
The market power exercised by the buyer of a good or service of a factor of production such as labour even though the firm is not a pure monopsonist
What is an example of a pure monopsony?
The armed service
What needs to be in place for a monopsony to occur?(5 asp)
-sole employer in the labour market
-employer has buying power over potential employees
-wage-setting powers
-potential cause of market failure
-supply curve of labour=average cost of labour
What 3 factors contribute towards imperfections in a labour market?
Monopsony power
Trade unions
Imperfect information
Give one way how an imperfect labour market is similar to an imperfect goods market?
D=AR
(So In a monopolistic labour market the the supply curve of labour is the firms average cost of labour
What does the average cost of labour curve show?
The different wage rates the monopsony must pay to attract labour forces of different sizes
Diagram for a monopsony in the labour market ?
Describe this diagram
-5 workers hired at an hourly wage of £1
-hourly wage must rise to £11 to attract a sixth worker
Where does the marginal cost of labour curve lie in comparison to the a cost of labour of a monopsony?
Lies above it
In a monopsony why is the average cost curve of labour not the same as the marginal cost of labour?.
To attract an extra worker the monopsony must raise the hourly wage rate a pay a higher wage to all workers
What actually is the marginal cost of labour for a monopsony?
Change in total amount the wage bill rises by employing one extra worker
Diagram die the determination of wage rate and the level of employment in a monopsony labour market?
In a perfectly competitive labour market and an imperfect competitive labour market where is the equilibrium
Where MRP of labour=marginal cost of labour
In a perfectly competitive labour market what point would be equilibrium
Point A
Describe what happens when a monopsony charges W1 instead of W2(equilibrium)
Wage rate is lower than MRP, W1 attracts all the workers the monopsony needs to hire so why pay more?
-if they paid higher they would incur unnecessary production costs and fail to maximise profits
What area represents wages lost ?
A,B,W1,W2
What are the 5 reasons why wage differences in labour markets are often substantial?
-disequilibrium trading
-imperfect market information
-occupational immobility of labour
-geographical immobility of labour
-discrimination
Why is disequilibrium trading a reason for substantial wage differences in labour markets?
-economies are always changing as does patterns of demand
-because these conditions are always changing labour markets are usually in disequilibrium than equilibrium
Market forces try to equalise this but it still occurs
Why is imperfect market information a reason for substantial wage differences in labour markets?
Sometimes workers lack information on rates of pay and employers can lack information about wage rates in other markets
-contributes to the immobility of labour
What is the occupational immobility of labour?
When workers are unwilling or unable to move from one type of Jon to another (e.g because of different skills being needed)
What is geographical immobility of labour?
When workers are unable or unwilling to move from one area to another in search of work
Why is occupational immobility of labour a reason for substantial wage differences in labour markets?
Artificial barriers stop workers moving from labour markets (leg required qualifications)
Why is discrimination a reason for substantial wage differences in labour markets?
Various forms racial religious age and gender affect both the demand and supply of labour (employers may be unwilling to employ certain types of labour)(on demand side some workers may be unwilling to work with people they perceive as being different
Why is geographical immobility of labour a reason for substantial wage differences in labour markets?
-housing prices
-families and job opportunities prevent people from moving geographically to move to another labour market
