Oslo Summer School in Comparative Social Science Studies 2005

Monopsony and Modern Labour Markets

Lecturer: Professor Alan Manning,
London School of Economics, United Kingdom

Main discipline: Economics

Dates: 1 - 5 Augsut 2005
Course Credits: 10 pts (ECTS)
Limitation: 30 participants

Participants: Laura Arranz-Aperte, Jesper Bagger, Jenny Clarhäll, Tyra Ekhaugen, Kim Massey Heide, Morten Henningsen, Fedor Iskhakov, Juanna Joensen, Erik Jonasson, Øystein Jørgensen, Antti Kauhanen, Reelika Leetmaa, Jani-Petri Laamanen, Rute Mendes, Maria Mikkonen, Gisle James Natvik, Maria Nilsson, Morten Nordberg, Hanna Pesola, Gábor Pula, Caroline Runeson, Marina Rybalka, Victoria Sparrman, Minerva Carolina Sztraka, Joachim Thøgersen, Ana-Maria Daniela Vasiliu, Wouter Vermeulen, Lars Westlie, Weizhen Zhu. Professor Alan Manning, London School of Economics, United Kingdom


If a firm cuts the wage of its workers by one cent what happens? The model of perfect competition assumes that all the existing workers immediately quit. The reality is that, because of frictions, this will not happen. This gives employers some market power over their workers and we would expect profit-maximising firms to exploit this. As a result monopsony rather than perfect competition is the best way to think about 'free' labour markets. Such an approach is not only better in terms of realism: it also helps to explain many features of the labour market that have long puzzled economists.

This course will present an integrated approach to the monopsony perspective and labour markets. It will develop theoretical models and present relevant empirical evidence.

Essential Textbook
The main textbook for this PhD course will be:

This book will be supplemented by simplifying notes for the more complex material. Some additional readings are presented in course outline below.

Course outline

Monday Sessions: Introduction and Overview

In this lecture I will outline the reasons for thinking that employers have some monopsony power over their workers, introduce some simple 'workhorse' models (both partial and general equilibrium) that can be used to think about the workings of monopsonistic labour markets, and provide an overview of the structure of the rest of the course.


Tuesday sessions: The Labour Market from a Worker Perspective

From the perspective of workers a monopsonistic labour market will have the following characteristics:

What this means is that, from the perspective of workers, a search model is the right conceptual framework to use. This lecture will explain how search models can be used to explain certain correlations between characteristics and wages and the decisions of workers about labour market participation and skill acquisition.


Wednesday Sessions: The Labour Market from an Employer Perspective

This lecture will consider the labour market from the perspective of employers and consider the optimal decisions they must make about pay, the structure of pay and non-wage aspects of jobs. It will be argued that monopsony can explain why wages are strongly correlated with employer characteristics, and the nature of vacancies.


Thursday Sessions: Labour Market Policies

Monopsony Models have rather different implications from competitive models when it comes to the desirability or otherwise of labour market interventions. In this lecture we discuss the reasons why certain interventions may be desirable on efficiency grounds and how empirical research should be used to evaluate policies.


Friday Session: A Research Agenda

This lecture will discuss some of the directions in which I think that current research should go and some of the directions in which it shouldn't go! The main research agenda discussed relates to measuring the extent of monopsony in labour markets. The 'missing literature' on the labour supply curve facing individual firms will be discussed as well as more indirect and structural methods to compute the extent of labour market frictions.


The Lecturer
Alan Manning is Professor of Economics at LSE and Director of the Labour Markets Programme at the Centre for Economic Performance at LSE (http://cep.lse.ac.uk/). His research has been in many areas of labour economics (details and many of his papers can be found at http://econ.lse.ac.uk/staff/amanning/work/work.html) but his main current interest has been on monopsony in labour market, the basis for this course. In 2003 he published the book 'Monopsony in Motion: Imperfect Competition in Labor Markets'. He is also an editor of Economica and the Journal of Labor Economics.

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