Monopsony & Minimum Wage
When the employer has wage-setting power, a minimum wage can raise employment, the competitive vs. monopsony debate.
The Monopsony & Minimum Wage model, in writing
Definition
A labour market with a single dominant employer: hiring one more worker requires raising the wage for everyone, so the firm hires fewer workers at a lower wage than a competitive market would.
Hire where MCL = MRPL ; wage read off supply, below MRPL
The intuition
The marginal cost of labour lies above the supply curve because each new hire's higher wage goes to all existing staff too. The firm stops hiring early and pockets the gap between what workers produce and what they are paid. This is why a carefully set minimum wage can RAISE both wages and employment here: it flattens the marginal cost of hiring.
Exam tip
The monopsony case is the exception that reverses the standard minimum-wage prediction; cite Card and Krueger's New Jersey study as the evidence that made it mainstream.
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