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Aggregate demand can reduce monopsonistic exploitation

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  • Ian M. McDonald

Abstract

In an aggregate setting with widespread monopsony, monopsonistic exploitation of workers decreases if aggregate demand increases, up to zero when the full employment constraint is met. Exploitation is also reduced by an increase in union power or by the imposition of a binding minimum wage. However, both will decrease employment. This is due to the negative effect of wages on investment. Being a Keynesian model, this negative effect can be offset by an increase in aggregate demand. Monopsony power can be a microeconomic foundation for Keynesian aggregate demand theory and should be recognised as a component of Keynesian macroeconomics.

Suggested Citation

  • Ian M. McDonald, 2025. "Aggregate demand can reduce monopsonistic exploitation," Review of Keynesian Economics, Edward Elgar Publishing, vol. 13(3), pages 339-351, July.
    • Handle: RePEc:elg:rokejn:v:13:y:2025:i:3:p339-351
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    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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