6.4 - Imperfectly competitive labour markets

What does monopsony mean?

There is only one buyer in the market

What is monopsony power?

The market power exercised in a market by a buyer of a good or services of a factor of production, such as labour, even though the firm is not a pure monopsonist

Example of monopsony power?

NHS has considerable monopsony power, though the existence of private shows the NHS is not a pure monopsony

How is the wage rate determined in a monopsony labour market?

- The marginal cost of adding an extra worker is more than the average cost. This is because in order to employ another employee the firm has to pay all of their workers more.

- At MC = MRP, the firm profit maximises. This means they employ Q2 workers. This makes the wage W2, lower than the market equilibrium competitive wage. The employment rate and the wage rate are below those that would exist in a perfectly competitive labour market

Diagram https://www.physicsandmathstutor.com/pdf-pages/?pdf=https%3A%2F%2Fpmt.physicsandmathstutor.com%2Fdownload%2FEconomics%2FA-level%2FNotes%2FAQA%2FMicroeconomics%2F6-The-Labour-Market%2Fd)%20The%20determination%20of%20relative%20wage%20rates%20and%20levels%20of%20employment%20in%20imperfectly%20competitive%20labour%20markets.pdf

What are the reasons for wage differences in imperfectly competitive labour markets?

- Disequilibrium trading

- Imperfect market information

- Occupational mobility of labour

- Geographical mobility of labour

- Discrimination

Why is disequilibrium training a reason for wage differences in imperfectly competitive markets?

Economies are subject to constant change. Patterns of demand also change. Because market conditions are always changing, labour markets are usually in disequilibrium. Although market forces tent to equalise wages in competitive markets, at any point in time disparities exist, reflecting the disequilibrium conditions existent at the time

Why is imperfect market information a reason for wage differences in imperfectly competitive markets?

Workers sometime lack accurate info on rates of pay, not only in other labour markets, but also within the industry in which they are selling their labour. Likewise, employers lack information about wage rates in other labour markets, and also, on occasion, within their own industries.

Why is occupational immobility of labour a reason for wage differences in imperfectly competitive markets?

Workers are obviously not homogenous or uniform, so differences in natural ability may prevent or restrict movement between jobs. Artificial barriers also prevent workers from moving between labour markets. These barriers include membership qualification imposed by professional bodies. Non members may find it difficult or impossible to join the trade union, though such practises are now illegal in the UK.

Why is geographical immobility of labour a reason for wage differences in imperfectly competitive markets?

Perhaps the most significant cause in the UK in recent years has been the state of the housing market. During house prices booms, low paid and unemployed workers in the North have found it nearly impossible to to move to the South to fill job vacancies. The prices of housing have soared and there has been very little housing available at affordable rents in either the public or private sectors.

At the same time, workers living in their own houses in the South may be reluctant to apply for jobs elsewhere for fear they may not be able to afford to move back to the South.

Why is discrimination a reason for wage differences in imperfectly competitive markets?

Various forms of racial, religious, age and gender discrimination affect both the demand for and the supply of labour. On the demand side, employers may be unwilling to employ certain types of labour, while on the supply side, workers may refuse to work alongside other workers they perceive to be different.