Monopsony, Unions, & Bilateral Monopoly Labor Markets Imperfectly Competitive Labor Markets

Monopsony Model Critical Attributes of Monopsony Labor Markets: There is a single buyer of a certain labor type Movement of labor is restricted, either geographically or because workers would have to acquire new skills The employer is a “wage maker,” because the wage rate it must pay varies directly with the number of workers it employs

Graphing Monopsony Upward sloping supply curve S = ARC The more workers a firm attempts to employ the higher the wage they must offer MRC is higher than the wage If monopsonists increase wages, they must do so for all workers they employ Equilibrium wage & employment Monopsonists hire the quantity of workers at MRC = MRP, at the wage on the supply curve directly below MRC = MRP

Unions Union: a cooperative collective of laborers Unions usually seek to raise wages Demand enhancement (increase product demand, increase productivity, or change the price of other inputs) Exclusion (reduce the supply of labor) Inclusion (increase the size of the union) Unions typically achieve higher wage rates, but at lower levels of employment Unions shift the MRC & supply curve and/or demand curve (remember: D = MRP)

Union Demand Enhancement

Exclusive Unionism

Inclusive Unionism

Bilateral Monopoly A monopsonistic labor market that is unionized Example: the auto industry Indeterminate outcome …depending on bargaining between the union and employer… between Wm and Wu

Practicing Imperfectly Competitive Labor Markets Workbook Unit 4 Lesson 3 Activity 49 Homework: Chapter 26 #2, 3, 7, 8, 9