Labour market forces and intervention
When the market isn't competitive
- a monopsony is a single dominant buyer of labour (the only big employer in a town). It can pay a wage below the competitive level and hire fewer workers.
- a trade union bargains for higher pay — it can push the wage above competitive, but may cut jobs.
- a national minimum wage is a legal lowest wage. Above the market wage it raises low pay but may cause unemployment — yet in a monopsony it can raise both wage and employment.
Practice
A monopsony in the labour market is a single dominant:
A monopsony is one big employer; it can pay below the competitive wage and hire fewer workers.
Practice
A national minimum wage set above the market wage usually:
It lifts low pay but can create unemployment; in a monopsony it can raise both wage and jobs.
Wage differentials & discrimination
- wage differentials come from differences in MRP (skilled work), training/qualifications, and the risk/unpleasantness of the work.
- discrimination pays people differently by gender/race/age, not productivity — tackled by equal-pay and anti-discrimination laws.
Practice
Wage differentials between jobs mainly reflect differences in:
Skilled, more productive (higher MRP) or harder jobs pay more; unfair gaps are discrimination.
You've got it
Key idea
- a monopsony (single buyer) pays below competitive; a union pushes above (may cut jobs)
- a minimum wage helps low pay but can cause unemployment — except in a monopsony
- wage differentials reflect MRP/skills; discrimination is unfair and illegal