Monopsony in the Labour MarketA2 Economics

Starter

•Define a monopsonist employer.

•Draw the diagram to show the impact of a monopsony employer on the labour market.

Monopsony in a Market without Trade Unions

Real Wage Rate/MRP

EmploymentQm

Wc

S = ACL

D=MRP

O

Wm

Qc

MCL

Re-Cap on Effect of Trade Unions•Unions will not supply labour below their

desired wage rate.

•Labour supply becomes perfectly inelastic.

Monopsony in a Market With Trade Unions

•Due to perfect elasticity, even monopsonist employers become a wage taker.

•National Union of Teachers and unions determine wage rate, which must be taken by the state (monopsonist employer).

Monopsony in a Market with Trade Unions

Real Wage Rate/MRP

EmploymentQm

Wc

S = ACL

D=MRP

O

Wm

Qc

MCL

Wm + tu

Qm + tu

Effective Marginal Cost

Union can keep increasing wages and employment up to here. Here employment levels will fall back.

Monopsony in a Market With Trade Unions

•Market Clearing = Wc : Qc

•Monopsonist employer = Wm : Qm

•Trade Union = Wm +tu : Qm + tu

Monopsony in a Market With Trade Unions

•Unions won’t supply below Wm+tu.

•Supply become perfectly elastic.

•Monopsonist employer (state) becomes a wage taker.

•Marginal Cost is constant.

Monopsony in a Market With Trade Unions

• However there is a limit to how many workers will supply themselves at the union’s wage rate.

• Beyond this point a higher wage must be paid to stimulate labour supply.

• Monopsonist faced with paying extra wage to all workers and the MCL exceeds the ACL.

• Results in a kinked curve showing the effective MCL.

Monopsony in a Market With Trade Unions

•The wage level (Wm+tu) and employment level (Qm+tu) are greater than they would have been without the involvement of a union.

•The closer the wage and the employment level is to the clearing equilibrium the more successful the trade union has been.

Do unions destroy jobs?

OrDo they act as a

counter to monopsony power and save jobs?

Effects of Unions on Monopsonist Firms•Unions act as a counter to monopsony

power, and according to the diagram can actually save jobs and influence the employment level and wage rate.

• Produce yourself a set of teaching notes and the monopsony diagram.

• You are then to have an economist speed dating session.

• You will have 3 minutes to tell your hot date all about monopsony in an attempt to ‘woo’ them with economics knowledge.

• Your date will then score you out of ten.