Embed Size (px)
DESCRIPTION
Monopsony. In 2001, oil rig roughnecks accused their employers of illegally fixing their wages in secret meetings occurring over the 10 preceding years (Walsh, 2001). In other words, the oil rig companies were being accused of being a monopsony, acting as a single buyer of roughneck labor. . - PowerPoint PPT Presentation
Citation preview
Monopsony
In 2001, oil rig roughnecks accused their employers of illegally fixing their wages in secret meetings occurring over the 10 preceding years (Walsh, 2001). In other words, the oil rig companies were being accused of being a monopsony, acting as a single buyer of roughneck labor.
Suppose the supply of roughnecks (RN) is: 𝑤=2.5+0.25 ∙𝐿
Where w is their hourly wage and L is measured in thousands of roughnecks per hour.
0 10 20 30 40 50 60 70 80 90 100 110 120 130 1400.002.505.007.50
10.0012.5015.0017.5020.0022.5025.0027.5030.0032.5035.0037.5040.00
Wage($ per hour)
Labor (thousands per hour)
Supply
If we ↑ from 30 to 50 thousand,
Suppose the supply of roughnecks is: 𝑤=2.5+0.25 ∙𝐿
Where w is their hourly wage and L is measured in thousands of roughnecks per hour.
0 10 20 30 40 50 60 70 80 90 100 110 120 130 1400.002.505.007.50
10.0012.5015.0017.5020.0022.5025.0027.5030.0032.5035.0037.5040.00
Wage($ per hour)
Labor (thousands per hour)
Supply
If we ↑ from 30 to 50 thousand, then TE on will ↑ by $450 thousand. The MC of will, on average be
Suppose the supply of roughnecks is: 𝑤=2.5+0.25 ∙𝐿
Where w is their hourly wage and L is measured in thousands of roughnecks per hour.
0 10 20 30 40 50 60 70 80 90 100 110 120 130 1400.002.505.007.50
10.0012.5015.0017.5020.0022.5025.0027.5030.0032.5035.0037.5040.00
Wage($ per hour)
Labor (thousands per hour)
Supply
If we ↑ from 30 to 50 thousand, then TE on will ↑ by $450 thousand. The MC of will, on average be
Suppose the supply of roughnecks is: 𝑤=2.5+0.25 ∙𝐿
Where w is their hourly wage and L is measured in thousands of roughnecks per hour.
0 10 20 30 40 50 60 70 80 90 100 110 120 130 1400.002.505.007.50
10.0012.5015.0017.5020.0022.5025.0027.5030.0032.5035.0037.5040.00
Wage($ per hour)
Labor (thousands per hour)
Supply
If we ↑ from 30 to 50 thousand, then TE on will ↑ by $450 thousand. The MC of will, on average be
MC
Alternative Derivation of the MC curve
Supply Curve:
𝑇𝐸=𝑤 ∙𝐿¿ (2.5+0.25 ∙𝐿) ∙𝐿
𝜕𝑇𝐸𝜕𝐿 =2.5+(2 ∙ 0.25)∙𝐿
𝑚𝑐
Hence,
0 10 20 30 40 50 60 70 80 90 100 110 120 130 1400.002.505.007.50
10.0012.5015.0017.5020.0022.5025.0027.5030.0032.5035.0037.5040.00
Wage($ per hour)
Labor (thousands per hour)
Supply
MC
Suppose the demand for roughnecks (MRP) is:
𝑤=32.5 − 0.25∙𝐿
Demand=MRP
𝑤𝑀
𝑤𝐶
𝐿𝑀 𝐿𝐶
Monopsonies pay lower wages and hire fewer workers than competitive markets
Oil rig roughnecks suspected that their employers were colluding by setting wages because wages “barely budged during labor shortages in 1997 and in 2000 after oil prices rose and drilling companies rushed to put idled rigs into production” (Walsh, 2001).
Lin, Chung-Cheng. 2002. “The Shortage of Registered Nurses in Monopsony: A New View from Efficiency Wage and Job-Hour Models, The American Economist , 46(1) Spring: 29-35
Principal Research Question:
What effect does increasing the minimum wage have on the price of restaurant meals?
Why is it important?
It tests whether the labor market for restaurant workers is competitive or monopsonistic.
“Our findings suggest that employment remains unchanged, or sometimes rises slightly, as a result of increases in the minimum wage. This conclusion poses a stark challenge to the standard textbook model of the minimum wage.''
Wage
Supply
Demand=MRP
𝑤𝑀𝑖𝑛
𝑤𝐶
𝐿𝐶
Illustrate the effect of the imposition of a minimum wage of labor and output markets, first assuming that both markets are competitive.
Labor
Permanent Surplus
CompetitiveLabor Market
Price
S1
D
𝑃𝑀𝑖𝑛𝑃𝐶
𝑄𝐶
Quantity
Market for Restaurant Meals
S2
𝑄𝑀𝑖𝑛
Wage
Labor
Supply
MC
Demand=MRP
𝑤𝑀
𝑤𝑀𝑖𝑛
𝐿𝑀
Illustrate the effect of the imposition of a minimum wage of labor and output markets, first assuming that both markets are competitive.
Wage
Labor
Supply
MC
Demand=MRP
𝑤𝑀
𝑤𝑀𝑖𝑛
𝐿𝑀
Illustrate the effect of the imposition of a minimum wage of labor and output markets, first assuming that both markets are competitive.
Wage
Labor
Supply
MC
Demand=MRP
𝑤𝑀
𝑤𝑀𝑖𝑛
Illustrate the effect of the imposition of a minimum wage of labor and output markets, first assuming that both markets are competitive.
𝐿𝑀𝑖𝑛𝐿𝑀
Illustrate the effect of the imposition of a minimum wage of labor and output markets, first assuming that both markets are competitive.
MonopsonisticLabor Market
Price
S1
D
𝑃𝑀𝑖𝑛
𝑃𝑀
𝑄𝑀𝑖𝑛
Quantity
Market for Restaurant Meals
S2
𝑄𝑀
Wage
Labor
Supply
MC
Demand=MRP𝑤𝑀
𝑤𝑀𝑖𝑛
𝐿𝑀𝑖𝑛𝐿𝑀
Aaronson, French and MacDonald (2008) estimate the relationship between minimum wages and restaurant prices to infer whether labor markets are competitive or monopsonistic.
𝑙𝑛𝑝𝑟 , 𝑠 ,𝑦=𝛽0+𝛽1 𝑙𝑛𝑤𝑠 ,𝑡𝑚𝑖𝑛+𝛿𝑠+𝜖𝑟 ,𝑠 , 𝑦
AFM’s Empirical Model
𝑙𝑛𝑤𝑎𝑔𝑒=𝛼0+𝛼1𝑒𝑑𝑢𝑐𝑎𝑡𝑖𝑜𝑛+𝜀
% ∆𝑤𝑎𝑔𝑒∆𝑒𝑑𝑢𝑐𝑎𝑡𝑜𝑖𝑛=100 ∙𝛼1
% ∆𝑝𝑟𝑖𝑐𝑒% ∆𝑤𝑀𝑖𝑛 =𝛽1
AFM’s Data
BLS restaurant-level data for 3 years, 1995-1997Fed increased from $4.25 to $5.15 over these years
𝑙𝑛𝑝𝑟 , 𝑠 ,𝑦 𝑙𝑛𝑤𝑠 , 𝑡𝑚𝑖𝑛
“We find that a 10 percent increase in the minimum wage increases prices by roughly 0.7 percent” (Aaronson, French and MacDonald, 2008, 697).
AFM’s Principal Result
�̂�1=0.0713(0.014 )
% ∆𝑝𝑟𝑖𝑐𝑒% ∆𝑤𝑀𝑖𝑛 ≈ 0.07
% ∆𝑝𝑟𝑖𝑐𝑒=0.07 ∙ %∆𝑤𝑀𝑖𝑛
If
�̂�1=0.0713(0.014 )
�̂�1=0.0713(0.014 )
�̂�1=0.0713(0.014 )
�̂�1=0.0713(0.014 )
�̂�1=0.0713(0.014 )
�̂�1=0.0713(0.014 )
�̂�1=0.0713(0.014 )
�̂�1=0.0713(0.014 )
