Labor Economics · advanced
What moves on the Monopsony & Minimum Wage diagram
Better outside options raise the wage the monopsonist must offer at every employment level: wages rise, employment falls, and the markdown shrinks.
The single employer pays below workers' marginal productmarginal productThe extra output from one more unit of an input, holding others fixed.: the monopsonymonopsonyA market with a single dominant buyer, for labor, one employer with the power to set wages below competitive levels. markdown.
Remote work and rival employers appear. Every worker's outside option improves.
The supply curve, and with it the marginal costmarginal costThe cost of producing one more unit. of labor, shifts up: attracting anyone now costs more.
The monopsonist hires fewer workers but must pay each one more. Competition for workers eats the markdown.
Examiners ask this as: outside options, remote work, worker bargaining, quit threat, labor market tightens.
Other scenarios on Monopsony & Minimum Wage