Sunday, November 13, 2016

Labor market monopsony is on the verge of becoming an overrated idea

See Arnold Kling on monopsony by Tyler Cowen.
"Suppose that we accept as true the finding by Richard Freeman that the highest wages are paid at the most profitable firms. If there is a monopsony story there, I do not see how to tell it. A monopsonist would exploit its workers by paying low wages, so I would expect that if monopsony were prevalent then we would see the highest wages paid to the least profitable firms (the ones who are competitive in the labor market and cannot exploit their workers).
Arnold is right, here is the full link.  Labor market monopsony is on the verge of becoming an overrated idea.  To the extent monopsony is important in explain labor market phenomena, it is short-run monopsony, mostly because workers have extracted perks from the employer.  That can lead to opportunism and problems with contract renegotiation, but it is not a distributional problem per se.  Again, here is Adam Ozimek on monopsony."

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