A Generalised Model of Monopsony
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.
|Date of creation:||Jul 2001|
|Date of revision:|
|Contact details of provider:|| Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Stephen Nickell & Glenda Quintini, 2001.
"Nominal wage rigidity and the rate of inflation,"
LSE Research Online Documents on Economics
20131, London School of Economics and Political Science, LSE Library.
- Stephen Nickell & Patricia Jones & Glenda Quintini, 2002.
"A Picture of Job Insecurity Facing British Men,"
Royal Economic Society, vol. 112(476), pages 1-27, January.
- Patricia Tracy Jones & Stephen Nickell & Glenda Quintini, 2000. "A Picture of Job Insecurity Facing British Men," CEP Discussion Papers dp0479, Centre for Economic Performance, LSE.
- 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.
- Simon Burgess & H Turon, 2000.
"Unemployment Dynamics, Duration and Equilibrium: Evidence from Britain,"
CEP Discussion Papers
dp0474, Centre for Economic Performance, LSE.
- Simon Burgess & Helene Turon, 2000. "Unemployment dynamics, duration and equilibrium: evidence from Britain," LSE Research Online Documents on Economics 20162, London School of Economics and Political Science, LSE Library.
- Burgess, Simon & Turon, Hélène, 2000. "Unemployment Dynamics, Duration and Equilibrium: Evidence from Britain," CEPR Discussion Papers 2490, C.E.P.R. Discussion Papers.
- 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.
- 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.
- Douglas O. Staiger & Joanne Spetz & Ciaran S. Phibbs, 2010. "Is There Monopsony in the Labor Market? Evidence from a Natural Experiment," Journal of Labor Economics, University of Chicago Press, vol. 28(2), pages 211-236, 04.
- Stephen Nickell & John Van Reenen, 2001. "Technological Innovation and Performance in the United Kingdom," CEP Discussion Papers dp0488, Centre for Economic Performance, LSE.
When requesting a correction, please mention this item's handle: RePEc:cep:cepdps:dp0499. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.