Monopsony caused by the excess government regulation

There is a new terminology invented for expressing the phenomenon that the buyers have a strong power for controlling the price and the quantity of goods and services enough to reduce the price under the market equilibrium value. This is called "monopsony".


The monopsony is suspected to occur when the labour market flow is stagnated, employers are excessively risk averse, and employees have little opportunity of changing their job with their free will due to the previously expressed causes. This situation provides employers with the excess power in the labour market enough to control over the price and the quantity for their favour.

*** Past and Present: Emerging Problem of the Relative Deprivation ***

In the past, the efficiency wage was high enough to prevent the absolute poverty when the supply of minimum necessities was more scares. So, the equilibrium wage was supposed to be not higher than the efficiency wage then. By contrast, due to the increased world market competition and the dramatic improvement of productivity supplied, the gap between the minimum wage enough to prevent the absolute poverty and the wage enabling individuals enjoy their average cultural living standard has become widened. Therefore, the relative deprivation caused by this dissatisfaction emerges.

This tension of increasing this dis-function caused by the increasing relative deprivation implies that the public sector cost will be increasing to tackle with increasing cases of crime and deviance. So, the simple regulation of wage floor preventing the excess wage decline can be more efficiently reduce the cost raised by the increasing dis-function caused by the relative deprivation than increasing the budged for police force and the overall cost covered for public security and insurance. The following explains about why the current market is difficult to discourage the lowering wage and to stimulate the meritocratic labour market flow.

*** Marxist Explanation Fails: Rise of Government Bureaucracy ***

The menu cost of employees changing their job has become dramatically higher due to the more bind employment contracts and more specialised labour market requirements than the past. Majority of job markets nowadays demand more precise job skill sets requiring a long term training to acquire. Also, each employing firm has become demanding its employees to learn and adapt to its own custom which is notably different from the other firm even in an identical industrial field.

The menu cost of employers examining their employees has also become dramatically higher due to the more complex labour contract laws and regulations imposed by government. Despite the old Marxist hypothesis, majority of firm owners have lost their power of controlling their means of production fulfilling their interests. Those who have a control over means of production are government bureaucrats whose power is growing due to the expanding government power over economy and a few super wealthy individuals whose wealth is inherited or obtained through political bribery in the current modern world. Employers, firm owners, and relatively wealthy individuals are taxed, regulated, and highly monitored by government and their peers.

Government attempt to maintain the static labour market flow. The tax collection scheme by government has more complex, and government have required more certain and detailed population census in a turmoil of the current modern day world politics. So, government tend to want to avoid the frequent need of regular employment and income surveillance required. When individuals frequently change their job and change their wage often, government are more required to spend time and resource to survey these individuals. Therefore, government attempt to keep the labour market more static in order to avoid the frequent employment and income surveillance.

*** Perpetuation of both Socialism and Misemployment ***

Socialist labourers form their trade union (labour union) to increase their wage above the market equilibrium, but their excess wage is confiscated as their union membership fee. So, the leading members of their union then exploit their share of wage for their own interest. Then, the rest majority can keep as same as or less than the market equilibrium rate. The productivity of their belonging firm is significantly lowered because of the excessively labour cost compared to the labour productivity. This infers that the economic system had better offer minimum wage before these socialists start making excuse to prepare for their union intervention.

This situation of monopsony in the mainstream market also perpetuates the misemployment. The misemployment means that individuals are employed under unhappy, unproductive, and/or criminal situations as following examples. Some individuals need to, although they do not want to, play the fool by a wearing funny costume for a street advertisement. Some individuals may work in a casino perpetuating gambling which tends to be considered as unproductive for both individuals' own household economy and the aggregate economic environment if this market share expands excessively. Mafia, a group of the main players in the underground economy, gains the higher chance of recruiting new members and its exploitable human resources as the competent potential human resources are expelled from the employment opportunity in the overground economy. Because these employment forms are far more labour intensive, the monopsony is far more likely to be prevented in these misemployment market than the healthy/productive employment counterpart. Therefore, it implies that the misemployment market tends to offer a higher wage than the counterpart under the monopsonic situation so that more labour forces are flowing into the misemployment market, which reduces the sum of individuals' utility even though the misemployment market may have increased the overall employment rate in an economy.

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