monopsony wage

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The theory of monopsony wages has been developed in economics to account for the results of research on statutory minimum wages. Economists have found that, contrary to expectations, the establishment or increase in a statutory minimum wage can lead to higher levels of employment. This finding has been explained by claiming that employer monopsony in the labour market effectively depressed wages below their ‘true’ market rate before the minimum wage was introduced. The minimum wage raises pay to the market rate and improves labour market functioning, with a consequent rise in employment. Employer monopsony in the labour market may arise where there is one dominant employer or where employers can identify a source of labour which is immobile or constrained in its choice of employment. An example might be women workers who are seeking twilight employment (evening work) to complement domestic responsibilities. [See National Minimum Wage.]

Subjects: Human Resource Management.

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