Monopsony

What is a monopsonist firm?

A firm that is the only buyer of a certain type of labour

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→ Market power as there is a lack of demand side competition as there is only one buyer

e.g. NHS, schools, investment banks

Monopsony diagram:

MCL = MRPL

→ If MCL > MRPL:

→ Change in TC > Change in TR from employing last worker

→ Firm should sack the last worker

What does the degree of market power of a monopsony depend upon?

The (%) of workers they employed

How does the market equilibrium compare to the perfectly competitive Labour market?

→ Workers are employed at a lower wage rate

→ Less workers employed under a monopsony

→ They have labour market and the power to restrict WR

→ They don’t want to (↑) WR as they know they have to do the same for all previous workers

→ Restrict employment as C (↑) → (↑)

→ Monopsony pays less than workers MRPL

→ The 2 dots show what they should be be paid and what they’re paid

→ If MRPL and Wm have a large distance

→ Indicated monopsony has a high degree of market power

What does the impact of a monopsonist depend upon?

→ Depends on the nature of the employer

→ Degree of the government exploitation

→ Low wage vs high wage industry

→ Depends on EDL

→ Depends on ESL

Depends on the nature of the employer:

If wages set too low → workers go to another firm

→ Monopsonistic employers not interested in profit max

→ Operate at MC=MRPL

→ Care about welfare max → more likely to exploit workers

→ Don’t want to suppress wages/employment

→ Can’t afford to pay high wages

→ Monopsony may not have much market power

→ May be other buyers of labour

→ Private monopsony might have other objectives

→ However, private monopsony might not have wage at Wm as it damages their reputation

Degree of government intervention:

CMA ensures market isn’t too concentrated

→ If one firm has too much market share

→ They regulate that firm or lower barriers to entry

→ Number of firms (↑) → may subsidise firms to enter market

→ Means more buyers of labour → less monopoly power

→ Workers aren’t exploited as much

→ Firms (↑) → output (↑) → DDL (↑) → buyers of labour (↑)

Low wage vs high wage industry:

Workers below WC are willing to work below minimum wage so they will be paid WC or the firm will be breaking the law

→ Workers above WC not willing to work at minimum wage

→ Demand higher wages → when WR (↑) → wages (↑)

→ For all previous workers → employment (↑) {Qm→Qc}

→ Monopsony has no incentive to restrict employment below Qc

→ When there is minimum wage → you don’t need to (↑) salary for all previous workers as you can pay them minimum wage

e.g. doctors regulate lots of training and skills so already paid minimum wage

→ Minimum wage has no effect

Depends on EDL:

Doctors have inelastic demand → can’t be replaced by capital

→ They have some power to force down wages and employment so they can’t exploit workers so much

→ Checkout assistants have wage elastic demand as they can be replaced by capital

→ Monopsony has more power to force down wages

→ Can exploit much more

Depends on ESL:

The more wage elastic the ESL is:

→ The less the monopsony force down wages

→ More wage elastic could be through education and training

→ More skills → occupational mobility (↑)

→ So they can work in industries that pay more

→ If people lack occupational mobility and are employed by a monopsony → exploitation (↑) as you can’t leave the industry

→ As you lack transferrable skills