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Introduction

In: Monopsonistic Labour Markets and the Gender Pay Gap

Author

Listed:
  • Boris Hirsch

    (Friedrich-Alexander-Universität Erlangen-Nürnberg)

Abstract

In his ground-breaking monograph Monopsony in Motion: Imperfect Competition in Labor Markets, Manning (2003a, p. 3) starts his argument in favour of a monopsonistic approach to labour market phenomena with a compelling case against perfect competition: ‘What happens if an employer cuts the wage it pays its workers by one cent? Much of labor economics is built on the assumption that all existing workers immediately leave the firm as that is the implication of the assumption of perfect competition in the labor market.’ Taking the model literally, this would indeed be its prediction. Other than in a perfectly competitive labour market where employers are wage takers unable to deviate from the market wage, a monopsonistic approach assumes that employers possess significant wage-setting power and actually exercise their market power. Put differently, it argues that some of the workers stay with the firm, giving the firm some discretion in wage setting. Technically speaking, the main difference between the two models is that under perfect competition the labour supply faced by the firm is infinitely elastic, whereas this does not hold under monopsony.1

Suggested Citation

  • Boris Hirsch, 2010. "Introduction," Lecture Notes in Economics and Mathematical Systems, in: Monopsonistic Labour Markets and the Gender Pay Gap, chapter 0, pages 1-8, Springer.
    • Handle: RePEc:spr:lnechp:978-3-642-10409-1_1
    DOI: 10.1007/978-3-642-10409-1_1
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