Monopsony as a metaphor for the emerging post‐union labour market

Abstract

How can employers worldwide be experiencing increasingly severe labour shortages in the face of globalization? Why don't wages rise in expanding economies? This article argues that declining union power has allowed employers to take the upper hand, setting pay and other conditions of employment as they would in a monopsonistic labour market. Rejecting the perfect competition model matching supply to demand, the authors argue that, far from being a pedagogical curiosity, monopsony's imbalance in bargaining power is widespread. Employee voice needs to be restored to counter the undesirable consequences of strong macroeconomic performance, such as wage inequality and reduced worker rights.

Do firms’ wage-setting powers increase during recessions?

“…By contrast, in the monopsonistic market, the firm can compensate for some of the shock by lowering wages without losing its workforce, thus decreasing the impact on firm employment. There is a similar result for a positive demand shock, implying that a monopsonistic labor market should generate less variation in employment but more variation in wages [4].…”

“…during a recession, labor supply to individual firms would increase as more unemployed workers search for jobs [4]. This supply increase would put downward pressure on wages in both perfectly competitive and monopsonistic labor markets.…”

“…Downward nominal wage rigidities should lower volatility in wages over the business cycle. At the same time, they may decrease volatility in employment, as a monopsonistic firm can maintain employment levels at moderately lower levels of demand [4].…”

The elasticity of labor supply to the firm over the business cycle

“…One possible explanation for this is that firm wage setting power had increased since previous business cycles. Work by Erickson and Mitchell (2007) connects monopsonistic labor markets to jobless recoveries by suggesting that monopsonistic labor markets result an inefficiently low number of workers being hired as the economy expands. For any given increase in labor demand, an upward sloping labor supply curve (and the correspondingly steeper marginal cost of employment curve) will yield a smaller increase in workers hired than would a perfectly elastic labor supply curve.…”

Bajos salarios en cinco países europeos y los EE.UU.: el papel de las instituciones nacionales

“…But the negative impact on employment may be more sizeable in countries, like France, where the level of the NMW is high compared to the median wage -see Abowd, Kramarz, Margolis and Philippon (2001) for comparative evidence on France and the USA. _____________ 21 The idea that monopsony power of employers maybe widespread in advanced economies is also put forward by Erickson and Mitchell (2007). They see "monopsony as a metaphor for the emerging post-union labour market.…”