What is the effect of a minimum wage law in a monopsony labor market?
What will be an ideal response?
A minimum wage rate can increase employment in a monopsony market. Over a range of employment, a minimum wage can lower the cost of hiring additional workers for a monopsony. In the absence of the minimum wage, the marginal cost of labor, MCL, curve exceeds the wage rate because hiring another worker requires that the firm must boost the pay of all its workers. With a minimum wage, hiring another worker at this wage rate requires that the firm pay this worker the minimum wage but the firm does not raise the wage rate paid its others workers because they, too, are paid the minimum wage. As a result, in this range of employment, a monopsony's cost of hiring another worker is lower with a minimum wage. The lower cost of hiring workers leads the monopsony to increase its employment.
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