Monopsony in the Labour Market A 2 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 MCL Real Wage Rate/MRP S = ACL Wc Wm D=MRP O Qm Qc Employment

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 MCL Real Wage Rate/MRP Effective Marginal Cost S = ACL Union can keep increasing wages and employment up to here. Here employment levels will fall back. Wc Wm + tu Wm D=MRP O Qc Qm Qm + tu Employment

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? Or Do 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.