Monopsony Power and Trade Unions

Monopsony Power and Trade Unions in Labor Markets

• Monopsony power in labor markets occurs when there is a single buyer of labor, leading to lower wages and fewer workers employed than in a perfectly competitive market.
• The marginal cost of labor for a monopsonist rises twice as steeply as the average cost of labor due to the need to increase wages for all workers to attract an additional worker.
• A trade union is an association of workers that negotiates collectively with employers to improve pay and working conditions.
• Trade unions work to counterbalance monopsony power in labor markets by advocating for workers' interests and negotiating better pay and conditions.
• Trade unions can increase wages above the equilibrium level in competitive labor markets, causing a surplus of labor supply over demand and potential unemployment.
• In a monopsony labor market with a powerful trade union, wages are increased, and employment is increased as well, counterbalancing the monopsony power.
• The advantages of trade unions include increasing pay and improving working conditions, reducing income inequality, and potentially boosting consumption and GDP.
• The disadvantages of trade unions include potentially causing unemployment, contributing to inflationary pressure, and potentially reducing productivity by resisting technological advancements.
• In a perfectly competitive market, the average cost of labor is equal to the supply of labor, as workers are wage takers with a perfectly elastic supply curve.
• In a competitive market with a trade union, wages are pushed above the equilibrium level, causing a surplus of labor supply over demand and potential unemployment.
• In a monopsony market, the monopsonist employs workers up to the point where marginal cost of labor is equal to marginal revenue product, paying wages based on the supply curve.
• In a monopsony market with a powerful trade union, wages are increased, and employment is increased as well, counterbalancing the monopsony power.