The Determination of Wages and Employment
For monopsonists and oligopsonists to employ more workers, they have to increase the wase rate .
- When a trade union negotiates with a monopsonists employer, the situation is referred to as a bilateral monopoly
- A bilateral monopoly is a market with a single buyer and seller
- In this case, the wage rate will be determined by the relative bargaining strength of the two sides
- If the monopsonists is very powerful, the outcome will be a wage rate close to that which the monopsonists would have chosen to pay without any union intervention (low rate)
- The stronger the union is, the closer the wage rate is likely to be to the upper limit
- However, the union must take into account the adverse effect that pushing up the wage may have on the quantity of labour demanded