Monopsony in labour markets Flashcards
Monopsony power in the labour market
National Health Service
Armed forces
Retailers such as Amazon and Sports Direct
Major supermarkets
Monopsony power - supply and demand analysis
A monopsony employer is a situation where there’s only one major buyer or employer in the labour market.
In such a scenario, the monopsonist has significant market power and can pay lower wages than would prevail in a competitive labour market.
This is because workers have limited alternatives and are essentially forced to accept the wages offered by the monopsonist.
The employer can exercise its market power
to set wages below the level that would exist in a more competitive market.
Monopsony disadvantages
Monopsony employers can use their buying power to pay a wage lower than the value of marginal revenue product of workers employed.
Monopsony power can lead to exploitation of employed workers.
Monopsony power and labour market failure
Lower wages: In a monopsony, the employer can set wages below the competitive equilibrium level because they’re the primary buyers of labour. This can result in lower wages for workers, which can lead to underpayment and a reduced standard of living for employees.
Reduced employment: Monopsonistic employers may also choose to hire fewer workers than they would in a competitive labour market. This can result in higher levels of unemployment or underemployment.
Diminished Job Security: Monopsonistic employers may provide suboptimal worling conditions, fewer benefits and less job security. This can negatively impact the well being and job satisfaction of workers.
Economic inequality: Monopsony power can exacerbate income inequality as it concentrates bargaining power with employers, leaving workers with less ability to negotiate for higher wages. This leads to an increase in working poverty and rising welfare claims to the state.
Interventions that might offset or reduce the monopsony power of employers in certain industries/occupations
1) Minimum wage laws that set a legally-enforced pay floor in the labour market . When enforced, this can help to ensure workers are paid a fair wage, even in industries where there’s monopsony power.
2) Regulations and laws such as allowing trade union representation, outlawing gangmasters, equal pay legislation and employment protection laws.
Example of interventions to reduce the monopsony power of employers
Angela Rayner(deputy British prime minister) claiming Britain should abolish zero hours contracts, increase the National Minimum Wage, Statutory Sick from day one, should abolish fire and rehire policy practice, bring in a 4 day working week, address gender pay gaps, promote flexibility in the WFH, end unfair dismissal
