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Monopsony in Other Labor Markets

2 March, 2015 - 12:11

A firm that has a dominant position in a local labor market may have monopsony power in that market. Even if a firm does not dominate the total labor market, it may have monopsony power over certain types of labor. For example, a hospital may be the only large employer of nurses in a local market, and it may have monopsony power in employing them.

Colleges and universities generally pay part-time instructors considerably less for teaching a particular course than they pay full-time instructors. In part, the difference reflects the fact that full-time faculty members are expected to have more training and are expected to contribute far more in other areas. But the monopsony model suggests an additional explanation.

Part-time instructors are likely to have other regular employment. A university hiring a local accountant to teach a section of accounting does not have to worry that that person will go to another state to find a better offer as a part-time instructor. For part-time teaching, then, the university may be the only employer in town—and thus able to exert monopsony power to drive the part-time instructor’s wage below the instructor’s MRP.