6.4 The determination of relative wage rates and levels of employment in imperfectly competitive labour markets

Factors contributing to inperfections in labour markets

monopsony power, trade unions, imperfect information

what is a monopsony

a market with onlt one buyer

monopsony power exists when

one dominaint buyer that faces little or no competition from other buyers, in the labour market this means workers have few employment possibilities and are therfore forced to accept lower wages

example of a monopsony

NHS in the labour market for doctors

UK govt in the labour market for teachers

how does monopsonly power lead to imperfections in labour markets

the employer has considerable market power and is able to set the wage rates and employment levels

Monopsonistic employers → lower both the relative pay rate + the level of employment → below levels that would be present in a labour market with perfect competition by using their market dominance

trade unions

an organisation of a group of employees who work together to represent and protect the rights of workers

how do trade unions contribute to imperfections in labour markets

Strong trade unions can result in higher wages and better worker protections, but they can also cause labour market rigidities and cause unemployment when compared to competitive labour markets.

How does imperfect information lead to labour market imperfections

Asymmetry of information between employers and employees can skew wage determination. Employers may take advantage of workers' inadequate awareness of industry standards for pay or job requirements to provide cheaper compensation.

Impact of monopsony power on wage rates and employment

lower wages and lower levels of emplyment than in a perfectly competitive market

how can you determine the strength of monopsony power

the difference between MRP and the monopsony wage