Using Oligopsony Theory And Monopsonistic Competition

2001 Words9 Pages
In traditional sense, “monopsony” is used to describe employer in a labour market. However it is unrealistic due to the existence of competition between employers. In contrast, it is more appropriate to model the labour market as under “oligopsony” and “monopsonistic competition”. Bashkar, Manning and To (2002, p 156) define Oligopsony in labour market as: “Oligopsony describe a situation where employer market power persists despite competition with other employers” For monopsonistic competition, it describes the condition which oligopsony has free entry or exit and all employer profits are zero. They are relatively more precise descriptions for the labour market as they show the coexistence of competition between employers and employers’ degree market power. In this article, we will discuss on two issues with the application of oligopsony theory and monopsonistic competition: why firms might pay for “general” training of workers and why minimum wages could increase employment. We will also outline circumstances that we should expect to observe these theoretical predictions in the real world if possible. Why firms might pay for “general” training of workers General training of employees is always an interesting topic for many economists and some say firms would not have the incentive to pay for general training. Pigou (1912) argues that because workers can quit and work for other employers after being trained, firms could not recoup their investment on training and so they

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