Labor markets

• Monopsony


  The sole employer of labor in a given industry
• In the UK, teachers and nurses are employed by a monopsony employer - the state</b>
• Monopsony power


  The significant buying power over workers that a monopsony employer has
• Wage takers vs wage makers

  Monopsonies can set wages absolutely, they are not wage takers
• How monopsonies operate


  Hire workers up to where MRP equals marginal cost of labor
• Supply of labor for a monopsonist

  Equal to the average cost of labor
• As monopsonist hires more workers


  They have to increase wages for all workers, not just the additional worker
• Marginal cost of labor for monopsonist

  Greater than average cost of labor
• Monopsonist employment level


  Where MRP equals marginal cost of labor
• Monopsonist wage level


  Read off the supply curve (equal to average cost of labor) at the employment level
• Workers in a monopsony are paid less than their MRP
• The lower wages are compared to MRP, the greater the monopsony power