monopsony NHS application

Q1: What is a monopsony in the labour market?

A monopsony occurs when there is one dominant buyer of labour, giving that buyer wage-setting power. In the UK, the NHS acts as a monopsonist in the healthcare labour market

Q2: How does the NHS display monopsony power?

The NHS is the largest employer of healthcare workers in the UK, allowing it to set wages below the level that would exist in a competitive market where wage is where MRP = ACL.

Q3: What are the consequences of monopsony power in the NHS? 5

1. lower wages for workers

2. labour shortages

3. emigration and brain drain, private sector

4. strikes

5. productive inefficiencies

Q4: How is the NHS monopsony an example of government failure?

Government intervention to provide free goods such as healthcare (via central funding and wage control) leads to unintended consequences like staff shortages and reduced service quality.

Q5: How can monopsony power be evaluated?

1. Short-run vs long-run: failure may only be temporary

2. trade unions in public sector reduce monopsony power

3. Not a pure monopsony: private sector exists as competition

4. Central control may help coordinate services more efficiently

Q6: What recent reform has strengthened the government's control over the NHS?

In 2025, the Labour government announced plans to abolish NHS England and bring it directly under the Department of Health and Social Care, removing the NHS Board.

Q7: What were the reasons behind abolishing NHS England? 4

1. to reduce red tape and bureaucracy

2. large spending reductions

3. improved coordination

4. reduced principal agent problem

Q8: How does the abolition of NHS England relate to monopsony power?

It further centralises labour purchasing in the healthcare sector, potentially reinforcing government monopsony power and leading to even lower wage-setting flexibility.

Q9: What are the risks of this centralisation reform? 3

1. job losses, over 9k lost

2. political interferance

3. reduction in service quality

Q10: How can this reform be linked to government failure?

Though aimed at improving efficiency, it could worsen outcomes (staff morale, wait times, operational logistics. if monopsony power suppresses wages or ignores local needs, the intervention by the government could cause a subsiquent decline in the overall utility of the NHS