Monopsony employers and minimum wages

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Monopsony employers and minimum wages

[@arafacts6]

what application is this?

[@timothyhufker3565]

Labor is a heterogenous product, where each exchange is negotiated on an individual basis, so there is not a consistent wage for the market. Even if there was, it would correspond to the MFC. If MFC isn’t wages, what is it?

[@pjdelucala]

A monopsony does not have to pay a higher wage to get more workers and also pay all the other people working that same higher wage. The marginal cost of labor does not work the same way as the marginal revenue for products produced by a monopoly which the lecturer is implying. With products, the monopoly lowers the price to increase sales and that lower price is for everyone unless they can price discriminate. So, marginal revenue falls quickly. It falls faster than the price. If workers don't have other options and are not part of a union, then they really lack negotiating power. For that reason, workers are paid low wages because they must take it or leave it. If a new worker can make a higher wage, the monopsony does not have to give the other workers that same higher wage. So there is no greatly accelerating marginal cost for labor. Instead the average cost of labor should be used. Here is a real situation in my life: I am a college professor. I taught computer science for many years. I worked for a "for profit" technical university that specialized in computer technology. No union. The computer science professors got paid a lot more than the English teachers because of the inelasticity of supply of computer science teachers. It was hard to find good computer science professionals that were willing to teach. So, the school had to offer high wages to get them and also keep their computer science teachers happy by giving them great raises. English teachers' supply curve was very elastic making it rather flat. The university was not willing to pay them well because if they didn't like the pay, they could quit. But they didn't quit because they had no other place to go to work. They weren't well paid. So, how does that fit in this model? Just get rid of the MC of labor curve and instead just use the average supply curve cost of labor to determine the average wage and number of workers. If wages must be increased for all computer science teachers, then that curve will shift to the left. The school will stop hiring when the MRP will equal to the average wage which is the wage as the lecturer demonstrates. Why is the marginal cost for labor the same as the average wage? The supply curve for labor IS the marginal cost for labor just like the supply curve of a product is the marginal cost curve for supplying that product. In this model, the supply curve can be considered as the average cost for labor as the lecturer states as well. The average cost of labor is the wage as he says. He shows the math W * Q / Q and isolates Wage. So the average wage is the wage according to him. You want to compare the wage to MRP to determine the number of hires. The marginal cost of labor is never lower than the average wage because the average wage is the wage according to the lecturer. This is unlike a production cost curve where the marginal cost (variable cost) of making a product can be lower than the average cost of making a product (fixed costs plus variable costs divided by output). In production, the marginal cost starts off decreasing due to economies of scale. For this model, that is not true. So, for this model, the supply curve is both the average cost of labor (the wage for everyone) and the marginal cost of labor. It is the wage and it increases as more people are hired assuming that they are being paid more as more are hired. It will be shift to the left if everyone's wage is increased as well. So, the model needs to be modified. Just allow the supply curve to shift to the left when hiring new people and if all workers must get a raise. Less workers are employed if they are skilled but they are employed at a higher wage not a lower wage as the lecturer states. The workers will be employed until the MRP equals the average wage which is also the wage for everyone as the lecturer states. They are all making the same wage you see? If the workers are unskilled then the supply curve will not shift it will be flatter and they are hired at a lower wage but more are hired because the wage equals a lower MRP. I am now an economist and teach at local colleges. Peter de Luca: Economist

[@faaf42]

In the model: If you hire a new person (without the concept of minimum wage) why would you increase salary of _all the employees_ and not just the new hire to whom you need to pay a bit more ?

[@curtisnoll1292]

I want to know this as well

[@LeagueUnionSevens]

Think about the real world. If you're an employer needing to hire staff, you can't just initially advertise a low wage and then gradually increase it bit-by-bit to hire each new employee, putting each one on an individual contract at exactly the minimum price they're willing to work for; that's just not going to work. In practice, you need to advertise a set wage from the start, with that wage being given to all people who get the job. Even if you were able to somehow segregate the labour market (which is just as difficult as a seller trying to sell their product to different buyers at individually-tailored prices), you're still not going to get away with it long, because soon the person on $15 wages will find out that one of his workmates is on $20 and another is on $25 and so forth, which will make everyone upset that they're not getting paid more (especially given it's assumed they're all doing the same job). They're then going to stop supplying labour at the price they were initially happy to. TL;DR price segregation works in theory, but not in practice

[@adarsh601]

Well if that was how it worked and I was an existing employee, I would just quit my job and then try and try to get rehired at the same company! Then I would get a higher wage (assuming the company has been employing more workers by increasing wage rate in the time since I was first employed) for the same job! So it doesn't work like that. Employees won't just accept being paid lower than their co-workers for no reason.

[@timothyhufker3565]

@@LeagueUnionSevens if MFC is the cost of wages shouldn’t MFC=the supply curve? I see how practically speaking Marginal cost of labor increases with quantity, and therefore the sum of individuals willingness to sell

[@astonmwanimage2994]

thank u khan

[@ThePeterDislikeShow]

What if we allowed the employer to pay each employee differently?

[@lorentshegdal9135]

In that case, the MFC would equal the supply curve, as you wouldn't have to pay existing workers more to get an incremental worker. If you were based on the scenario at 3:23, the employment level and social surplus would increase, BUT the employees would have no "surplus" at all, as all their initial surplus would be transfer over to the employers.

[@ThePeterDislikeShow]

@@lorentshegdal9135 Is this part of the reason we have anti-discrimination laws in addition to minimum wage?

[@ryanwong7426]

why wouldn't the firm just pay the same wage for every extra worker that they hire? Is there any reason for them to increase wages for every extra worker hired?

[@michaelwagner5470]

THANK YOU. This seems divorced from reality.

[@simoning4426]

What you're describing is called "price discrimination", and without price-discriminating, they must increase the wage for *everybody* to attract more workers.

[@casju]

Wait how tf are you the same guy teaching about amp ops in electronics? Do you just happen to know everything??

[@hanminhduccc]

Omg thank you so much

[@jakub5616]

i think the MFC curve should be continuous (the right-hand side should be lowered parallelly)

[@austin7455]

this was very helpful. I was opposed to a minimum wage of any kind because I thought that higher rates per employ simply meant less jobs to be had, like if you a had 100 per hour to spend on wages, increasing the minimum wage from ten to fifteen meant that the number of employees you could hire simply went from ten to six. however, I didn't take into account that the number of employees and moreover the wage budget was dictated in part by the revenue that each employee generated. I am now in favor of a careful crafted minimum wage that meets the point of at which the mrp and mfc cross. I welcome any corrections.

[@alexgarcia977]

So I was just viewing this video to look for sources for my argumentative essay against the minimum wage. Listen carefully to what Sal says at the end, those profits from businesses will go to the workers. Now we all need to consider how will businesses react. This is the expectation that businesses will will not readjust their profit margins and just simply take the hit of smaller profits. Prices will likely go up or less employment may ensue to maintain original profits.

[@marinagajardo3775]

@@alexgarcia977 Yes,! lol same here and yeah the end says it all. Now to look for sources.

[@user-dz2wl9ch6i]

good

[@alexgarcia977]

Most businesses pay at the cross section of Supply and demand or in this case "Supply of Labor and MRP". this video is assuming that businesses pay less than the supply & demand cross section. The minimum wage proposed in the U.S. will be sufficient for large corporations to still meet the minimum wage proposal without hitting above the threshold. However, small businesses can't afford to pay any higher, aka. for small businesses the minimum wage proposal in the U.S. is the "W3" in this video as most small businesses have a lower supply & demand cross.

[@faaf42]

This lesson would benefit from overview before digging in to the details.

[@oldcodger9388]

You made a pretty serious conceptual mistake with the discontinuity. The last line you drew should follow the marginal cost curve when it intersects with it. The minimum wage does not negate the fact that marginal costs increase at that point. You seem to be assuming that the minimum wage becomes the marginal cost. There is no justifiable reason for that assumption. Thus, in your example, employment is not increased. Neither is it decreased. It stays the same. I recommend that you correct this.

[@matttheundefeated8364]

Is this the same guy who did trig

[@bryannanga2239]

He did everything Like you actually XD

[@jsluo4689]

Why does monopsony pay more as it hires more employees? Why does not it simply pay a very low wage to everyone disregarding the labor quantity?

[@CLPPED]

increasing wage by $1 means the next worker costs $1 more in addition to the previously hired workers

[@garygrinkevich6971]

Its amazing they never, ever, taught this in school, but then again maybe its more of a feature of capitalist education than a flaw...

[@alexgarcia977]

Think about it, the W1 assigned is clearly inaccurate. A business would not want to hire less than the labor demand they need, they will hire up to the point that they meet the labor demand their business needs. (The higher you pay, the more people who want to work 'labor supply) (The less you pay, the less a business needs demand of labor). All businesses by their standard will hire as many people they can until they meet the demand of workers they need. Absolute, nonsense why a business will pay at a wage where there's an excess amount of people willing to work for a business and yet the business is not paying enough to meet the demand of labor needed. The 'Wm' set here in this video is the business set wages. The proposed minimum wage is realistically at the 'W3'.

[@alicekhayami3925]

You are so beautiful. Love you