6.4

• Monopsony definition

  There is only one buyer in a market
• monopsony power definition

  the market power exercised in a market by the buyer of a good or the services of a factor of production such as labour, even though the firm in not a pure monopsonist
• What is an imperfectly competitive labour market?

  A labour market where either employers or workers (or both) have some power to influence wages and employment levels, rather than wages being set purely by supply and demand
• what is monopsony power in the labour market?

  when a single employer dominates hiring in a labour market, giving them the power to set wages below competitive levels because workers have fewer alternatives
• monopsony example

  the NHS often cited as a monopsony in the market for doctors and nurses in the UK, as it is the dominant employer
• what effect does monopsony power have on wages and employment?

  monopsonies pay lower wages and hire fewer workers than in a perfectly competitive labour market, leading to allocative inefficiency and wage suppression
• how does minimum wage interact with monopsony power?

  a minimum wage in a monopsony can increase both wages and employment, reducing the distortion caused by the employer’s wage-setting power
• What is a trade union?

  An organisation of workers that seeks to improve wages, working conditions, and rights through collective bargaining with employers
• how can trade unions improve labour market outcomes in imperfect markets?

  trade unions can create wages and improve conditions by negotiating on behalf of workers, potentially correctING monopsony underpayment
• what happens if a trade unions sets the wage too high?

  lead to excess supply of labour (unemployment), especially in non-monopsony markets
• what is bilateral monopoly in the labour market?

  situation where a monopsonist employer faces a powerful trade union; both sides have market power, and wages are determined through negotiation
• Reasons for wage differences in imperfectly competitive labour markets ?

  • disequilibrium trading - not at equilibrium due to factors like long-term contracts, minimum wage laws or slow adjustments
  • Imperfect market information - lack full knowledge of opportunities, wages or skills
  • Occupational immobility of labour - can’t easily switch careers due to lack of training or qualification
  • Geographical immobility of labour - unwilling or unable to move to higher-paying regions
  • Discrimination in the labour market - some workers face bias based on gender, ethnicity, age etc.
• real life markers are imperfectly competitive to a greater or less extent
• in monospony, the wage rate and the level of employment are likely to be lower than in a perfectly competitive labour market