monopsony in the labour market
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Monopsony in the Labour Market. A2 Economics. Aims and Objectives. Aim: To understand monopsony in the labour market Objectives: Recap on the effects of trade unions on the labour market Define and explain monopsony - PowerPoint PPT PresentationTRANSCRIPT
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Monopsony in the Labour Market
A2 Economics
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Aims and Objectives
Aim:
To understand monopsony in the labour market
Objectives:
• Recap on the effects of trade unions on the labour market
• Define and explain monopsony
• Analyse the effects of a monopsony in a market with no trade unions, and with trade unions
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Effects of Entry of a Union into a Previously Competitive Labour Market
Real Wage Rate/MRP
EmploymentQtu
Wc
Se
D=MRP
O
Wtu
Qc
• Union refuses to supply below Wtu
• Kinked supply curve WtuSe
• Consequence is that the wage rises and employment falls to Wtu; Qtu
• Competitive market WcQc
• Market no longer clears
• Excess supply exists (Unemployment)
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Power of Trade Unions
• Qantas axe 1000 jobs and outsource maintenance from Austrailia
• http://www.bbc.co.uk/news/business-15507106
• Do some trade unions still have power?
• What could the implications be for the Australian economy and Qantas?
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Monopsony DefinitionA monopsonist employer is the sole
employer of a particular type of labour.
In UK the state is a monopsonist employer of teachers and
doctors/nurses.
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Monopsony Explained
• Occurs as a result of lack of competition on the demand side of the market.
• Monopolists have power with regard to price setting, so do monopsonists!
• Monopsonist employer can use power to drive down wages.
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Consider a Monopoly….
Think about monopolistic power..
What determines just how powerful the monopolistic firm is in the market?
Answer: market share
The same is true of a monopsonist!
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Power of Monopsonists
• The greater the proportion of employees in a market employed by a particular firm/state, the greater the power that firm/state will have.
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Monopsony in a Market without Trade Unions
Real Wage Rate/MRP
EmploymentQm
Wc
S = ACL
D=MRP
O
Wm
Qc
MCL
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Monopsony Diagram
• As a monopsonist the employer is not a wage taker.• As industry’s sole employer it is faced with industry
supply curve.• Due to it’s power it can choose any point on the S
curve.• Due to upwards slope if the monopsonist wants to
employ one more worker, if must offer a higher wage rate.
• Marginal cost is therefore greater than average cost of labour
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Monopsony Diagram
• Because the increased wage must be paid not just to the extra worker, but all other workers in that industry.
• Monopsonist will hire an extra worker as long as they add more to revenue than to costs.(MRP>MCL)
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Monopsony Diagram
• It will cease to hire extra workers where MRP=MCL.
• Equilibrium of Qm, where the monopsonist pays the lowest wage for this qty of labour (Wm).
• In a competitive market equilibrium = Wc:QC
• Therefore the result of monopsony power is to lower wage rates and employment levels.
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Monopsony Diagram
• Monopsonist pays a wage lower than the marginal revenue product of the last worker.
• In a competitive labour market, the wage and MRP are equal.
• The extent to which wages less than the MRP are paid in the real world, indicates how powerful the monopsony is.
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• 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.