A generalised model of monopsony

Manning, Alan ORCID: 0000-0002-7884-3580 (2001) A generalised model of monopsony. CEPDP (499). London School of Economics and Political Science. Centre for Economic Performance, London, UK. ISBN 075301470X

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Abstract

Recent research in labour economics (e.g. the work of Card and Krueger, 1995, on the impact of minimum wages) has led to renewed interest in the appropriate model to use when thinking about the labour market. But, the standard textbook models of both perfect competition and monopsony are both implausible, though for different reasons. The competitive model because it assumes the wage elasticity of the supply of labour to the individual firm is infinite and the monopsony model because it assumes that an employer cannot do anything to raise employment other than raise the wage. This paper presents a more general but very simple model in which the employer can also raise employment by increasing expenditure on recruitment. Using this, it is shown how that division between perfect competition and monopsony is not the issue of whether the wage elasticity in labour supply is infinite or finite (as it is usually presented) but whether there are diseconomies of scale in recruitment. Using a unique British data set containing information on both labour turnover costs and the number of recruits, we present estimates that do suggest that there is an increasing marginal cost of recruitment.

Item Type:	Monograph (Discussion Paper)
Official URL:	http://cep.lse.ac.uk
Additional Information:	© 2001 Alan Manning
Divisions:	Centre for Economic Performance Economics
Subjects:	H Social Sciences > HD Industries. Land use. Labor
JEL classification:	J - Labor and Demographic Economics > J6 - Mobility, Unemployment, and Vacancies > J63 - Turnover; Vacancies; Layoffs
Date Deposited:	29 Jul 2008 14:25
Last Modified:	11 Dec 2024 18:29
URI:	http://eprints.lse.ac.uk/id/eprint/20115

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