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The competitive labour market model assumes that firms are wage-takers — they cannot influence the market wage. In reality, many labour markets are characterised by monopsony power, where one or a few employers dominate the hiring of workers. This has profound implications for wages, employment, and economic welfare.
Key Definition: A monopsony is a market structure in which there is a single buyer. In the labour market, a monopsony employer is the sole (or dominant) purchaser of a particular type of labour.
The term was coined by Joan Robinson (1933) in The Economics of Imperfect Competition. Robinson demonstrated that a monopsony employer has the power to set wages below the competitive equilibrium, resulting in exploitation of workers.
A pure monopsony (a single employer) is rare but not unknown:
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