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A Generalised Model of Monopsony

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  • Alan Manning

Abstract

Recent research in labour economics (e.g. the work of Card and Krueger, 1995, on the impact of minimum wages) has led to renewed interest in the appropriate model to use when thinking about the labour market. But, the standard textbook models of both perfect competition and monopsony are both implausible, though for different reasons. The competitive model because it assumes the wage elasticity of the supply of labour to the individual firm is infinite and the monopsony model because it assumes that an employer cannot do anything to raise employment other than raise the wage. This paper presents a more general but very simple model in which the employer can also raise employment by increasing expenditure on recruitment. Using this, it is shown how that division between perfect competition and monopsony is not the issue of whether the wage elasticity in labour supply is infinite or finite (as it is usually presented) but whether there are diseconomies of scale in recruitment. Using a unique British data set containing information on both labour turnover costs and the number of recruits, we present estimates that do suggest that there is an increasing marginal cost of recruitment.

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Bibliographic Info

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0499.

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Date of creation: Jul 2001
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Handle: RePEc:cep:cepdps:dp0499

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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Keywords: Labour Turnover;

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References

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  1. Stephen Nickell & Tracy Jones & Glenda Quintini, 2000. "A picture of job insecurity facing British men," LSE Research Online Documents on Economics 20141, London School of Economics and Political Science, LSE Library.
  2. Salop, Steven C, 1979. "A Model of the Natural Rate of Unemployment," American Economic Review, American Economic Association, vol. 69(1), pages 117-25, March.
  3. Simon Burgess & H Turon, 2000. "Unemployment Dynamics, Duration and Equilibrium: Evidence from Britain," CEP Discussion Papers dp0474, Centre for Economic Performance, LSE.
  4. Stephen Nickell & Glenda Quintini, 2001. "Nominal Wage Rigidity and the Rate of Inflation," CEP Discussion Papers dp0489, Centre for Economic Performance, LSE.
  5. Douglas Staiger & Joanne Spetz & Ciaran Phibbs, 1999. "Is There Monopsony in the Labor Market? Evidence from a Natural Experiment," NBER Working Papers 7258, National Bureau of Economic Research, Inc.
  6. Stephen Nickell & John Van Reenen, 2001. "Technological Innovation and Performance in the United Kingdom," CEP Discussion Papers dp0488, Centre for Economic Performance, LSE.
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Cited by:
  1. Jan Rouwendal & Jos van Ommeren, 2007. "Recruitment in a Monopsonistic Labour Market: Will Travel Costs be reimbursed?," Tinbergen Institute Discussion Papers 07-044/3, Tinbergen Institute, revised 03 Sep 2008.
  2. Samuel Muehlemann & Paul Ryan & Stefan C. Wolter, 2011. "Monopsony power, pay structure and training," Economics of Education Working Paper Series 0099, University of Zurich, Institute for Strategy and Business Economics (ISU).
  3. Blatter, Marc & Mühlemann, Samuel & Schenker, Samuel & Wolter, Stefan C., 2012. "Hiring Costs of Skilled Workers and the Supply of Firm-Provided Training," IZA Discussion Papers 6344, Institute for the Study of Labor (IZA).
  4. Felbermayr, Gabriel J. & Larch, Mario & Lechthaler, Wolfgang, 2012. "Endogenous labor market institutions in an open economy," International Review of Economics & Finance, Elsevier, vol. 23(C), pages 30-45.
  5. Felbermayr, Gabriel & Impullitti, Giammario & Prat, Julien, 2014. "Firm Dynamics and Residual Inequality in Open Economies," IZA Discussion Papers 7960, Institute for the Study of Labor (IZA).
  6. Gerda Dewit & Dermot Leahy, 2005. "Oligopsonistic Cats and Dogs," Economics, Finance and Accounting Department Working Paper Series n1590905, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
  7. Samuel Muehlemann & Harald Pfeifer & Felix Wenzelmann, 2013. "The Costs of Recruiting Apprentices: Evidence from German Firm-Level Data," Economics of Education Working Paper Series 0095, University of Zurich, Institute for Strategy and Business Economics (ISU).
  8. Samuel Muehlemann & Harald Pfeifer, 2012. "The structure of hiring costs in Germany - evidence from firm-level data," Economics of Education Working Paper Series 0077, University of Zurich, Institute for Strategy and Business Economics (ISU), revised Sep 2013.
  9. Manning, Alan, 2011. "Imperfect Competition in the Labor Market," Handbook of Labor Economics, Elsevier.
  10. Dube, Arindrajit & Freeman, Eric & Reich, Michael, 2010. "Employee Replacement Costs," Institute for Research on Labor and Employment, Working Paper Series qt7kc29981, Institute of Industrial Relations, UC Berkeley.
  11. George Karatzas, 2009. "On the origin and the literal meaning of monopsony: a note," International Review of Economics, Springer, vol. 56(4), pages 425-430, December.
  12. Marc Blatter & Samuel Muehlemann & Samuel Schenker, 2008. "The Costs of Hiring Skilled Workers," Economics of Education Working Paper Series 0015, University of Zurich, Institute for Strategy and Business Economics (ISU), revised Nov 2009.
  13. Rosa Sanchis-Guarner, 2012. "Driving Up Wages: The Effects of Road Construction in Great Britain," SERC Discussion Papers 0120, Spatial Economics Research Centre, LSE.

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