1. Monopsony in the Labour Market
A2 Economics

2. Starter Define a monopsonist employer.
Draw the diagram to show the impact of a monopsony employer on the labour market.

3. Monopsony in a Market without Trade Unions
MCL
Real Wage Rate/MRP
S = ACL Wc Wm
D=MRP O Qm Qc
Employment

4. Re-Cap on Effect of Trade Unions
Unions will not supply labour below their desired wage rate.
Labour supply becomes perfectly inelastic.

5. 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).

6. Monopsony in a Market with Trade Unions
MCL
Effective Marginal Cost
Real Wage Rate/MRP
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 Qm Qc
Employment
Qm + tu

7. Monopsony in a Market With Trade Unions
Market Clearing = Wc : Qc
Monopsonist employer = Wm : Qm
Trade Union = Wm +tu : Qm + tu

8. 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.

9. 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.

10. 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.

11. Do unions destroy jobs? Or Do they act as a counter to monopsony power and save jobs?

12. 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.

13. 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.