Imperfect competition in the labor market - Microeconomics...

14.6. Imperfect competition in the labor market

The labor market in imperfect competition has a number of characteristics, in particular, the freedom of action in this market is significantly limited, which creates the conditions for the emergence of monopolies.

Consider the extreme case - the dominance of monopsony in the labor market. In a sense, monopsony is a mirror image of a monopoly.

Recall that monopsony (monopoly of one buyer) is when the employer has a monopoly power to buy (hire) workers. Thus, the economy of some cities depends almost entirely on one large company, for example, gold mining, coal, railway, etc. Monopsony occurs under the following conditions:

o on the labor market interact, on the one hand, a large number of skilled workers who are not united in a trade union, and on the other - either a large firm-monopsonist, or several enterprises united in one group and acting as a single employer,

o the company (group of companies) hires the bulk of the available total number of specialists of a certain profession;

o The type of labor represented on the market does not have high mobility (for example, due to social conditions, geographical disconnection, the need to acquire a new specialty, etc.);

o firm-monopsonist personifies the industry, therefore the labor supply curves for the firm and industry coincide; the labor supply curve is the curve of the mean (ARC), rather than the marginal cost (Figure 14.6);

o The monopsonist firm sets the wage rate itself, and the workers either have to agree with the existing offer, or look for another job.

In other cases, oligopsony can prevail - the dominance of three or four firms that can employ the bulk of the proposed labor in a particular market. Here it is important to note the following: if a company is large in relation to the labor market, it is forced to pay a higher wage rate in order to gain more labor.

With regard to costs, the payment of a single wage to all workers will mean that the costs of the "additional" The worker is the marginal cost of the resource, i.e. MRC will exceed the wage rate by the amount necessary to bring the wage rate of all workers already hired to a new level.

In order to maximize profits, the firm will equalize the marginal costs for the resource (MRC) with the marginal product (MRP). The rule applies here: all else being equal, the monopsonist maximizes his profit by employing fewer workers and at the same time paying a lower wage rate than in a competitive environment. As a result, society has less

The supply of labor and the demand for labor in monopsony

Fig. 14.6. The supply of labor and the demand for labor in a monopsony

products, and workers receive a wage rate below their marginal product in monetary terms. Thus, marginal costs increase in accordance with the growth of the wage rate (see Figure 14.6).

The figure shows that, the demand for labor takes the form of a broken curve of the line (ABLM). Based on the rule MRC = MRP, in this case, the firm will employ LM man. In accordance with the curve of the proposal SL it is possible to hire employees with payment of their labor at a rate of WM, that is exactly what a monopsonist will pay them. In other words, this way of establishing total control leads to a general reduction in employment (and hence production) and a decrease in the standard of living of the population.

Monopsonical labor markets are not typical for developed countries. Nevertheless, economists have confirmed the existence of monopsony in such different labor markets as the work of nurses, professional athletes, public school teachers, newspaper publishers and workers in some specialties in construction.

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