The Labour Market Flashcards
monopsony power
when there is one buyer in the market that dominates the purchasing of labour
where does monopsony power occur
labour and suppliers markerts
how would you show monopsony power on a monopoly diagram
decreasing costs of labour
(ac shifts downards)
monspony diagram
marginal cost
average cost = s (- half steepness of mc)
demand = marginal revenue product
monopsony equilibrium versus free market equilibrium
monopsony equilibrium
(quantity of mc=d // mc=mrp
but price of s // ac at that quantity)
free market equilibrium
(qunatity and price at mrp=ac / s=d)
why is marginal cost in a monoposony diagram steeper than average cost
because pay has to increase with each new worker to incentivise them to join
so you have to raise the price for the new worker and the wage rate increases for every other worker as well
whereas average cost is just per unit = supply
monopsony examples
nhs for doctors and nurses
government for teachers
armed forces for military personel / soldiers
monopsony characteristics
profit maximisers
dominant buyers of labour in the market
power to both set prices and the wage rate (monopoly power)
costs of monoposonies
limits profits for suppliers
because they receive lower revenue
employees lose out to decreased wages
and have limited choice for alternatives
(but can be countered through trade unions
lower levels of employment (quantity shifting left)
workers can become unproductive because of low wages and incentive
examples of monopsony power in the suppliers context
supermarkets monopsony power over farmer
can suppress the wage rate of farmers
as farmers have no one else to sell
benefits of monosponies
lower costs
can be reinvested in the firm
dynamic efficiency
lower costs
should eventually lead to lower costs for the consumers
(depends on if the firm chooses to just keep the extra profit)
what do trade unions do (economically)
break monopsony power
(through set salaries)
increase wages
employment
working conditions
increase job security and long term employment
allow market to become more flexible and less monoposistic
what does the trade union marginal cost line look like and why
straight line until it meets the ac=s line, the straight up before meeting the original mc line and joining it
originally straight because no elasticity (due to rigid set price by trade union)
once meets ac=s goes straight up and joins the other mc line because the trade union price is no longer incentive enough for new employees to join at tu price, so raises as it would if there had never been the wage floor
why is the trade union mc line / wage rate below equilibrium
because monopsonies still have more power than trade unions (in modern era) - not as strong nor widespread as they used to be
wage rate and proximity to free market rate / above, depends on strength of trade union
national minimum wage diagram
supply and demand diagram with horizontal line above free market equilibrium to represent the minimum wage
where the nmw line meet d = qunatity demanded and s = quantity supplied
affects of minimum wage
improves standards of living + equity + quality in labour markets
but increases unemployment
minimum wage impact on supply and demand
demand for labour decreaces (wages up, costs of production up, so decrease demand to cut costs)
supply for labour extended / increased (wage up, more willing and able to work)
excess supply (qd < qs)
why does minimum wage increase unemployment
firms want less output (quantity shifting left)
people have lost jobs
vs.
more people in labour market (from lost jobs and increased pay)
how to measure the increase in the rate of unemployment as a result of minimum wage
quantity demanded - quantity supplied
evaluation on minimum wage
studies on minimum wage have shown in doesnt necessarily cause unemployment
studies in new jersey showed an increase in employment
and 2016 uk study found decrease in hours worked rather than real unemployment
instead increased costs of production pushed onto consumer through increased prices
and reduces profit which can reduce dynamic efficiency
how are unemployment data in uk misleading
employment can be sustained
uk suffers more from underemployment (e.g. 0 hour contracts)
imperfect information on employment
underemployment due to not knowing where to get an accurate job
examples of imperfect information on employment
high graduate underemployment
20% of graduates in uk work non graduate jobs in 2022
(partly due to not knowing where to find the right jobs
