This papers attempts to show that the neoclassical analysis of monopsony is erroneous. We deal with this issue under two sub-headings: those compatible with mainstream economics, and those that are not. In the first category are: paucity, wrong target, temporariness, limited window, complexity, information and timing (length of run). In the second category are those stemming from an alternative economic perspective, Austrianism: objective expenses vs. subjective costs, reliance on illegitimate interpersonal comparisons of utility, failure of trade to occur, coerced income transfers, difficulties with perfect competition and geometrical/mathematical considerations.
Wage inequalities between identical workers of different race, ethnicity, and gender are a persistent feature of labor markets. However, most labor market models either ignore important empirical evidence or focus very narrowly on specific labor market dynamics. To better understand such wage differences, we create a labor market model that integrates firm competition for workers, employee movement between jobs in response to market signals, potential monetary frictions in the job transition process, and workers' collective action which is a function of government support. Our model shows that because of gender- and race-specific historical and social outcomes, like the relatively lower household wealth of Black and Latino families and the increased household responsibilities of women, women and minority workers are more exploitable; employers can push their wage farther below the value of their marginal product. Also, our model shows that the cumulative wage gap for non-White women is greater than the additive gaps of being nonmale and non-White. Lastly, our model shows that a reduction in government support for collective action enables employers to wield monopsony power more freely, independent of changes in employer concentration. Because certain groups are more exploitable, employers' increased capability in wielding monopsony power means increased wage differentials replicating discriminatory biases against marginalized groups of workers.
In a classic article, Oliver Williamson introduced the efficiency defense to antitrust merger analysis. In this article, I extend his analysis to mergers among buyers that may create monopsony power. When such mergers are accompanied by merger-specific efficiencies, there is necessarily a welfare tradeoff. Evaluating the impact of the merger on social welfare requires a comparison of the cost savings that can be realized only without the merger and the allocative inefficiency due to the exercise of monopsony power.
In a classic article, Oliver Williamson introduced the efficiency defense to antitrust merger analysis. In this article, I extend his analysis to mergers among buyers that may create monopsony power. When such mergers are accompanied by merger-specific efficiencies, there is necessarily a welfare tradeoff. Evaluating the impact of the merger on social welfare requires a comparison of the cost savings that can be realized only without the merger and the allocative inefficiency due to the exercise of monopsony power.
This paper studies the implications of monopsony power for optimal income taxation and welfare. Firms observe workers' abilities while the government does not and monopsony power determines what share of the labor market surplus is translated into profits. Monopsony power increases the tax incidence that falls on firms. This makes labor income taxes less (more) effective in redistributing labor income (profits). The optimal tax schedule is less progressive. Monopsony power alleviates the equity-efficiency trade-off that occurs because the government does not observe ability, but at the expense of exacerbating capital income inequality. I illustrate these findings for the US economy.
