The additional portion, viz., W m – W F, is uniquely attributable to monopsony. The W c – W m portion of monopsonistic exploitation is attributable to monopoly in the commodity market-it is not unique to monopsony. 16.2, is the amount of monopsonistic exploitation of labour, which is as we have already said, something in addition to the monopolistic exploitation of labour. By definition, the difference between W c = VMP L and W F, i.e., W c – W F in Fig. Here the rate of wage W = W F and the employment level L = L E are not only lower than W c = VMP L and L = L c, but they are also lower than W m = MRP L and L = L m. In this case, the labour market equilibrium will be obtained at the MRP L= ME L point e(L = L E) and here the W – L combination would be obtained at the point e'(W F, L E). Lastly, in the third case of monopoly-monopsony the MRP L curve is the demand curve for labour of the monopsonist buyer of labour and S L is the supply curve of labour. However, each unit of input receives an amount equal to what its employment adds to total receipts on the margin. Because of monopolistic exploitation, fewer units of labour (L m < L c) are used at a lower price per unit (W m < W c). Here, since the rate of wage W = W m is less than W = W c, there is labour market exploitation which is called the monopolistic exploitation which amounts to W c – W m. The labour market equilibrium here is obtained at the point of intersection, m(W m, L m) between these curves. Here, the MRP L curve is the aggregate demand curve for labour and the S L curve is the aggregate supply curve. The wage rate that the firm would pay for the L E units of labour is W F, which is the equilibrium rate of wage. The firm is in equilibrium at L = L E, when it equates ME L to MRP L at the point e in Fig. Also, because of the average- marginal relation, the marginal expense for labour (ME L) curve here would be sloping upwards, and it would lie above the S L or AE L curve. This curve shows the rate of wage or the average expense for labour (AE L) at different levels of employment. In other words, the labour supply curve under monopsony would be sloping upward towards right like the curve S L in Fig. Here, since the firm is the only buyer of labour, it would have to pay a higher wage whenever it wishes to have a larger supply of labour, i.e., it would have to attract labour by paying a higher wage. Also, here the supply curve of labour has a positive slope. Here the labour demand curve of the firm is the MRP L curve (assuming labour to be the only variable factor used by the firm). 16.2, the second model of wage determination under market imperfections, where the firm has monopolistic powers in the product market and monopsonistic powers in the factor market. Let us now discuss, with the help of Fig. The Second Model: Monopoly in the Product Market and Monopsony (Single Buyer) in the Labour Market-the Monopsonistic Exploitation of Labour: 16.1, this exploitation is given by W c – W m, which is the difference between the rate of wage obtained under competition on the basis of VMP L and that obtained under monopoly on the basis of MRP L. This effect has been called monopolistic exploitation of labour by Joan Robinson. We have also seen that when the firms have monopolistic powers, labour is paid at the rate of MRP L, which is less than VMP L (= W c). Only when there is perfect competition in the product market, the market demand is assumed to be based also on VMP L, because then VMP L = MRP L. As we have seen, under monopoly, the market demand for labour is based on MRP L and not on VMP L. 16.1 at the point e where the wage rate has been obtained to be W m. The market price of labour or the rate of wage is determined by the intersection of the market demand and market supply curves for labour, viz., IMRP L and S L, as shown in Fig. Higher wages may induce some people to work less hours, but will also attract new workers in the market in the long run.
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