If a firm has market power in
If a firm has market power in the labor market (e.g., amonopsony), compare the impact on wages and employment betweenincreased union membership and an increased minimum wage. What isthe term for both a monopsony and a union present in a labormarket? Which of these two outcomes, an increase in unionmembership or an increase in minimum wage, is preferable based onyour analysis? Explain.
Answer:
Answer: Monopsonyrefers to a market situation where a particular firm has so muchpower in the market that it becomes the sole purchaser of aspecified kind of labor. In contrary to the perfectly competitivemarket, in monopsony, the wage rates are relatively very low. Inperfect competition, minimum wage above the market equilibriumleads to unemployment but in monospony, it creates employmentopportunities as well as increases wages. Trade unions bargain withthe employers regarding better working conditions for the workers,shorter hours of work and increased wages. Increased unionmembership will thus reduce wage inequality and increaseemployment. Thus, both increased minimum wage and increased unionmembership aims at increasing wages and employment.
According to myanalysis, increased minimum wage is more favorable as unlike tradeunions, minimum wage does not demand to reduce the working hours ofthe labor, nor does it specify incurring huge costs in maintainingbetter working conditions.
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