What is a Monopsony? 

A competitive labor market is one where there are many potential employers for a given type of worker, say a secretary or an accountant. Suppose there is only one employer in a labor market. Because that employer has no direct competition in hiring, if they offer lower wages than would exist in a competitive market, employees will have few options. If they want a job, they must accept the offered wage rate. Since the employer is exploiting its market power, we call the firm a monopsony. 

Employers that have at least some market power over potential employees is not that unusual. After all, most firms have many employees while there is only one employer. Thus, even if there is some competition for workers, it may not feel that way to potential employees unless they do their research and find the opposite.

Related Topics

• Labor Economics
• Labor Market Equilibrium
  
• Labor Market
• Labor Market Equilibrium
• Labor Market Efficiency
• Price, Supply, and Demand in the Labor Market
• Equilibrium Wage
• Shifts in the Demand for Labor
• What Causes Shifts in the Supply Labor?
• How Technology affects Demand for Labor?
• Minimum Wage as a Price Floor in the Labor Market
• What is the First Rule of Labor Markets?
• Labor Demand in Perfectly Competitive Markets
• Imperfect Competition in Labor Markets
• Monopsony
• Oligopsony
• Labor Market Power of Employers
• What is the marginal Cost of Labor?
• Labor Market Power of Employees
• What is a Bilateral Monopoly in a Labor Market?
• Wage Elasticity of Labor Supply
• Equilibrium in Supply and Demand in Labor Markets
• Shifts in Supply and Demand in Labor Markets