Labor Market Monopsony

When an employer has wage setting power because workers have few alternative jobs, pay can sit below the competitive level.

Overview

The term was coined by economist Joan Robinson in the 1930s. In a monopsonized market an employer can pay less than workers produce without losing all of its staff, because job switching is costly or alternatives are scarce, as in company towns or rural hospitals. Research in recent decades suggests some degree of wage setting power is common, which helps explain why moderate minimum wage increases have often shown small employment effects. Noncompete clauses and no poach agreements are policy targets because they can strengthen employer power.