Josh's Reviews > Monopsony in Motion: Imperfect Competition in Labor Markets

Monopsony in Motion by Alan Manning
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's review
Jul 18, 2007

really liked it
Read in June, 2007

Progressives have always had a clear set of empirical findings about labor markets, starting with the unquestionable fact that minimum wages don't reduce employment. Also that there are better and worse jobs, that unions can raise wages, and that discrimination systematically reduces the wages of women and minorities. There isn't a clear consensus, though, on what underlying theory of the labor market explains these realities.

This book is the best reason attempt I know of to provide a theoretical underpinning for the observable facts of wages and employments.

The argument is that employers do not face the infinitely elastic labor supply of theory, but an upward sloping labor supply curve. In English, employers can lower wages somewhat without losing all their employees, while if they want to significantly increase their workforce they pay have to increase wages 9or incur other equivalent costs). In other words, they are purchasers with some market power -- monopsonists in the jargon (thus the book's title.)

It's well-known that a lot of the behavior of the labor market could be explained in terms of employer monopsony, but this never seemed relevant since you don't find genuine monopsony (i.e. only a single employer available for some group of workers) outside of company towns and the like. What this books shows is that you get the equivalent of monopsony as long as the labor market is somewhat "viscous", that is, if workers find it easier to seek jobs at businesses that are "close by," whether in the literal geographic sense or in the sense of being in the same industry as their previous employment, where their friends or relatives work, or any other factor that would make some seemingly identical jobs more accessible or attractive. Once you realize this, the concept of monopsony becomes very widely applicable.

It's a brilliant concept, that hopefully will spur lots of interesting labor economics down the road. Unfortunately, the book is limited by the typical economist's approach of writing about "employers" and "workers" in the abstract, without ever asking how monopsony might apply more or less, or differently, in different regions, industries, or historical periods.

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