14.4 Bilateral Monopoly
2 min read•june 25, 2024
Labor markets can get complicated when there's only one big employer and a union. This creates a , where both sides have power to influence wages and jobs.
In this setup, wages are usually higher than if the employer had all the power, but lower than in a competitive market. Employment levels are also affected, often ending up somewhere in between.
Bilateral Monopoly in Labor Markets
Monopsony and Union Power
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- Single employer or limited number of employers in the creates power allows the employer to set wages below competitive levels as they face an upward-sloping curve
- Unions negotiate on behalf of workers for better wages and working conditions can threaten collective action (strikes) to increase
Wage and Employment Determination
- Unions and monopsonistic employers engage in process determines the wage rate and employment level
- Bargained wage rate is typically higher than the monopsony wage but lower than the competitive wage influences the level of employment
- Higher wage rates may lead to lower employment levels compared to the competitive market employment level is determined by the intersection of the of labor (MRPL) and the bargained wage rate
Impact on Labor Market Outcomes
- Wage rates in a bilateral monopoly are typically higher than the monopsony wage rate but lower than the competitive wage rate exact wage rate depends on the relative bargaining power of the union and employer
- Employment levels in a bilateral monopoly are generally lower than the competitive employment level but higher than the monopsony employment level determined by the bargained wage rate and the MRPL
- Bilateral monopolies may lead to inefficient outcomes bargaining process may result in wages and employment levels that differ from the competitive equilibrium potential for deadweight loss due to reduced employment and higher wages
Bargaining Power Dynamics
- Union bargaining power factors include union membership and solidarity, ability to organize collective action (strikes), public support and political influence, and availability of alternative employment opportunities for workers
- Monopsonistic firm bargaining power factors include degree of labor market concentration, elasticity of labor supply, availability of substitute inputs (automation, outsourcing), and financial resources and ability to withstand work stoppages
- Economic conditions such as unemployment rate and labor market conditions and industry-specific factors (demand for products, market competition) influence bargaining power
- Legal and institutional factors like labor laws and regulations, and union security agreements, and government intervention and mediation in labor disputes also impact bargaining power dynamics
Key Terms to Review (15)
Bargaining Power: Bargaining power refers to the relative ability of parties in a negotiation or transaction to influence the terms and outcomes. It is a crucial concept in understanding the dynamics of labor markets and bilateral monopoly situations.
Bilateral Monopoly: A bilateral monopoly is a market structure in which there is a single buyer (monopsony) and a single seller (monopoly) of a particular good or service. In this scenario, the buyer and the seller must negotiate the terms of the transaction, including the price and quantity, as they both have significant market power.
Collective Bargaining: Collective bargaining is the process by which workers, through their labor unions, negotiate with employers to determine the conditions of employment. It involves the negotiation of wages, hours, benefits, and other working conditions for a group of employees.
Labor Demand: Labor demand refers to the willingness and ability of employers to hire workers at different wage rates. It represents the quantity of labor that employers are willing to employ at various possible wages, reflecting the marginal productivity of labor and the costs of hiring additional workers.
Labor Market: The labor market is the market in which workers find paying work, and employers find the labor they need. It is a key component of any economy, as the availability and cost of labor directly impact the production of goods and services.
Labor Supply: Labor supply refers to the willingness and ability of workers to provide their labor services in exchange for wages or other forms of compensation. It is a fundamental concept in the study of labor markets and how the availability and utilization of human resources influence economic outcomes.
Marginal Revenue Product: Marginal revenue product (MRP) is the additional revenue a firm can generate by employing one more unit of a variable input, such as labor. It represents the value of the extra output produced by that additional unit of input. MRP is a crucial concept in understanding how firms make decisions about hiring and employment in imperfectly competitive labor markets, bilateral monopolies, and the factors contributing to income inequality.
Market Power: Market power refers to the ability of a firm or group of firms to influence and control the market by setting prices, restricting output, and limiting competition. It is a measure of a firm's ability to charge prices above the competitive level and earn economic profits in the long run.
Monopsony: Monopsony is a market structure where there is only one buyer for a product or service, giving that buyer significant control over the price and supply of the goods or services being purchased. In labor markets, this means that a single employer can dictate terms for wages and employment, often leading to lower wages than would occur in a competitive market.
Negotiation: Negotiation is the process of discussing and bargaining with others to reach an agreement or compromise on a particular issue or transaction. It involves the exchange of offers, counteroffers, and concessions between two or more parties with the goal of reaching a mutually beneficial outcome.
Right-to-Work Laws: Right-to-work laws are state-level statutes that prohibit labor union security agreements, which require all employees in a unionized workplace to pay union dues or fees as a condition of employment. These laws aim to give workers the choice to join or financially support a union, even in workplaces with collective bargaining agreements.
Strike Fund: A strike fund is a pool of money set aside by a labor union or workers' organization to provide financial support to members during a labor strike. These funds are used to cover basic living expenses, such as food, rent, and utilities, for workers who forgo their paychecks to participate in a strike action against their employer.
Strikebreakers: Strikebreakers, also known as replacement workers, are individuals who are hired to perform the work of employees who are on strike. They are brought in to maintain operations and production during a labor dispute, often with the goal of undermining the bargaining power of the striking workers.
Wage Determination: Wage determination is the process by which the price of labor, or the wage rate, is established in an economy. It involves the interaction between the supply of labor and the demand for labor, as well as other factors that influence the equilibrium wage level.
Weighted Average: A weighted average is a calculation that takes into account the relative importance or significance of each component in a set of data. It is used to determine an average value when the individual components have varying degrees of influence or weight.