Monopsony Flashcards
Monopsonist
A firm that is the only buyer of a particular type of labour
Why does a monopsonist have market power?
- The lack of competition on the demand side so there is a lack of firms demanding labour
How can monopsonists exploit workers?
- give low wages as they know that there is no other place to work
Why are monopsonists and oliopsonists wage makers?
- they influence the wage rate unlike in a competitive market
Why is MCL > ACL?
In order to hire an additional unit of labour, the firm not only needs to raise wages for the additional unit of labour, but they need to also raise the wages of all previous units of labour
Market equilibrium employment
MRPL = MCL
What happens when the equilibrium employment has been determined?
The monopsonist will pay workers the lowest wage rate possible at that level of employment
How does the market equilibrium compare to that in a perfectly competitive labour market?
Wages are much higher in a perfectly competitive labor market
- there is lots of firms in the industry so there is lots of competition to get the best workers so offer high wages
The monopsonist will pay workers the lowest wage rate possible
What is the degree of market power of the monopsonist dependant on?
How high a percentage of workers in their segment that they employ in the labour market
Evaluating the impact of a monopsonist
1. Depends on the nature of the employer
- monopolist in the public sector are less likely to have labour market failure as the government are welfare maximisers so offer lower prices
- however they may offer lower wages as they have a limited budget and are in a deficit
- some firms may not be profit maximizing and not charge really high prices to exploit consumers as the employer may be from the local community which they do not want to upset
2. The degree of government intervention
- in the product market if there is one firm that is operating and has complete market share that charges very high prices the government could regulate the firm by splitting it up into smaller groups
- This creates competition in the labour market so wage rates are closer to Wc than Wm as workers have more choice on where to work
3. Depends if a high wage or low wage industry
- at WM workers are being exploited as the national minimum wage is at WC
- the MCL1 curve is perfectly elastic until Qc as in order to employ one additional unit of labour, employers don’t have to increase the wages for all previous units of labour so change in costs is from Wm to Wc
- after Qc, it jumps to MCL2 as to hire one more unit of labour, employers have to increase the wages for all previous units of labour
- SL1 is perfectly elastic as workers are not able to supply their labour below the national minimum wage
- after QC, SL2 no longer elastic as people only willing to supply their labor higher than the national minimum wage
- Put a low wage industry and monopsonists can’t exploit workers due to the national minimum wage
- can be exploitative in a high wage industry as not impacted by the national minimum wage as workers wages are already higher
4. When the demand for labour is inelastic
- not much difference in the wage increase when demand is inelastic and supply is elastic
