According to the common sense of the mainstream economic pattern, employment should rise when the price is on trend toward the inflation and the labour. Furthermore, the number of job recruits has increased although not so many candidates apply for.
The answer about it came up after considering who still holds more power in the market. The matter is that the bargaining power is not symmetric in the labour market. On the top of the bargaining power, the involuntary unemployment caused by the wage lower than the efficient wage also influences this situation. This situation is where the purchaser holds more power than the supplier, and this is called monopsony.
Focusing on the graph above, the wage is considered as the cost for the employer (purchaser) who attempts to maximise the profit by lowering the wage s/he has to pay. Then, instead of purchasing labourers (supplier) at the equilibrium point where the wage labourers are willing to receive and the wage the employer is willing to pay meet, the employer sets the wage (the cost) lower than the equilibrium point.
Under this case scenario, the employer is able to set the wage where the marginal revenue and the marginal cost intercept each other so that s/he can enjoy maximising profit. Even though the price inflation takes place, as long as the employer holds the power of controlling the supply of labourers, the price inflation does not force this employer to increase the wage.
The labourers still have a weak bargaining power because the unemployment is still high so that the labourers still face an intensive competition when they are looking for a desirable job. The fundamental problem is that the wage rate reduced by the monopsonic power of the employers does not fulfil what many labourers want. Therefore, the involuntary unemployment emerges despite a rise of the employment opportunity.
The employers are still happy because there are still some employers willing to be hired at the rate lower than the equilibrium point. This is also caused by the discouraged labour mobility where individual labourers are reluctant or handicapped to change a job flexibly. Many individual labourers have become too precautious to come out from they have already secured a job. This situation occurs under the risky environment of finding an alternative desirable employment opportunity and the intensely regulated market discouraging employers from being flexible to hire new employees.
There are various ideas of solving this matter to increase the employment and the wage level. Imposing the minimum wage regulation pushes the wage meeting the equilibrium point the wage will rise and employment may rise when it reaches to just the equilibrium point. Deregulating the labour market may increase the labour mobility by motivating employers to flexibly hire employers without being worried about the regulation after hiring them and encouraging employers finding a better employment opportunity.
Someone may claim that it can be caused by the qualitative issue than the quantitative issue such as the wage and the quantity. The matter can be how enjoyable the job is for employers especially for the younger generation. In case of many developed countries, the work ethics differs across different generation groups of individuals. Enjoyability related to the working environment and the characteristics of colleagues may affect. In addition, the employers' mentality of choosing employees may restrict her/his preference of hiring new employees due to the misunderstanding of what the current labourers claim for nowadays.
Overall, although there are various potential solutions, the current problem of the monopsony does not seem to be solved yet. Many of those who are concerned with these aforementioned matter need to revise this asymmetric shape of the market to rationally tackle with it after understanding its mechanism.
