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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 London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 20115.

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Length: 28 pages
Date of creation: Jul 2001
Date of revision:
Handle: RePEc:ehl:lserod:20115

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Keywords: Labour Turnover;

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References

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  1. Simon Burgess & H Turon, 2000. "Unemployment Dynamics, Duration and Equilibrium: Evidence from Britain," CEP Discussion Papers dp0474, Centre for Economic Performance, LSE.
  2. 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.
  3. Stephen Nickell & Patricia Jones & Glenda Quintini, 2002. "A Picture of Job Insecurity Facing British Men," Economic Journal, Royal Economic Society, vol. 112(476), pages 1-27, January.
  4. Stephen Nickell & Glenda Quintini, 2001. "Nominal Wage Rigidity and the Rate of Inflation," CEP Discussion Papers dp0489, Centre for Economic Performance, LSE.
  5. 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.
  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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Citations

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Cited by:
  1. Manning, Alan, 2011. "Imperfect Competition in the Labor Market," Handbook of Labor Economics, Elsevier.
  2. 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.
  3. Gabriel Felbermayr & Mario Larch & Lechthaler Wolfgang, 2011. "Endogenous Labor Market Insitutions in an Open Economy," Ifo Working Paper Series Ifo Working Paper No. 108, Ifo Institute for Economic Research at the University of Munich.
  4. Rosa Sanchis-Guarner, 2012. "Driving Up Wages: The Effects of Road Construction in Great Britain," SERC Discussion Papers 0120, Spatial Economics Research Centre, LSE.
  5. 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.
  6. Blatter, Marc & Muehlemann, Samuel & Schenker, Samuel, 2012. "The costs of hiring skilled workers," European Economic Review, Elsevier, vol. 56(1), pages 20-35.
  7. 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).
  8. Gabriel Felbermayr & Giammario Impullitti & Julien Prat, 2014. "Firm Dynamics and Residual Inequality in Open Economies," Discussion Papers 2014-01, University of Nottingham, GEP.
  9. Mühlemann, Samuel & Ryan, Paul & Wolter, Stefan C., 2011. "Monopsony Power, Pay Structure and Training," IZA Discussion Papers 5587, Institute for the Study of Labor (IZA).
  10. Mühlemann, Samuel & Pfeifer, Harald, 2013. "The Structure of Hiring Costs in Germany: Evidence from Firm-Level Data," IZA Discussion Papers 7656, Institute for the Study of Labor (IZA).
  11. Gerda Dewit & Dermot Leahy, 2009. "Oligopsonistic Cats and Dogs," Review of Industrial Organization, Springer, vol. 35(3), pages 257-274, November.
  12. 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).
  13. 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.

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