Tag Archives: monopsony

Why monopsony employer power is virtually irrelevant to the impact of a higher minimum wage on employment

Source: Coyote Blog
by Warren Meyer

“Most of us who took Econ 101 would expect that an increase in the minimum wage would increase unemployment, at least among low-skilled and younger workers most affected by the minimum wage. After all, demand curves slope downwards so that an increase in price of labor should result in a decrease in demand for that labor. … Supporters of the minimum wage, however, argue that these employment effects are exaggerated, because employers have something called monopsony power when hiring low-skill workers. What a monopoly is to customers — it limits choices — a monopsony does to suppliers, in this case the suppliers of labor. The argument is that due to a bargaining power imbalance, employers can hire workers for less than they would be willing to pay in a truly competitive market, gaining the company added savings that increase its profits.” (01/30/18)


A note on minimum wages and monopsony power

Source: Cafe Hayek
by Don Boudreaux

“The existence of monopsony power supplies the only theoretically credible condition under which a minimum wage can possibly improve the well-being of low-skilled workers without harming any of them. Of course, however, claims that monopsony power is in reality rampant enough in the United States to justify minimum-wage legislation are incredible. These claims fail the smell test. But — and here’s the point of this post — to the extent that temporal or geographic pockets monopsony power might arise in reality, once source of such power might well be minimum-wage legislation itself.” (12/06/17)


What monopsony power in the labor market looks like

Source: EconLog
by Scott Sumner

“Many people seem to assume that only monopolies have monopoly power. Not so, most firms do. If your firm can raise prices by one penny without seeing sales drop to zero, then you have monopoly power. And if you can reduce wages by one penny per hour without losing all your employees, then you have monopsony power in the labor market. That’s not to say perfect competition is not a useful model, it’s is a good approximation of reality in some contexts. But it’s becoming increasing clear that monopsony power is more than a minor characteristic of the labor market, it gets to the heart of the current issue of labor shortages.” (06/13/17)