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  • Print publication year: 2010
  • Online publication date: June 2012

12 - Competitive and monopsonistic labor markets

from Book III - Competitive and monopoly market structures


Labour, like all other things which are purchased and sold, and which may be increased or diminished in quantity, has its … market price.

David Ricardo

Professional football players earn more than ministers or nurses. Social workers with college degrees generally earn less than truck drivers, who may not have completed high school. Even the best history professor and researcher probably earns less than a mediocre professor of accounting on most campuses.

Why do different occupations offer different salaries? Obviously not because of their relative worth to us as individuals. Just as there is a market for final goods and services – calculators, automobiles, dry cleaning – there is a market for labor as a resource in the production process. In competitive labor markets, the forces of supply and demand determine the wage rate workers receive.

By concentrating on the economic determinants of employment – those that relate most directly to production and promotion of a product – we do not mean to suggest that other factors are unimportant. Many noneconomic forces – such as social status, appearance, sex, race, and personal acquaintances – influence who is employed at what wage. Our purpose is simply to show how economic forces affect the wages paid and the number of employees hired. Such a model can show not only how labor markets work but also how attempts to legislate wages, such as minimum-wage laws, affect the labor market.

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