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What's Monopsony? It May Be the Reason You Haven't Had a Raise

Employers like bargains, too.

Employers like bargains, too.

Photographer: Timothy Fadek/Bloomberg

Now that unemployment has touched its lowest level since 1969, economists are puzzling even more over why wages haven’t been rising faster. After all, with fewer prospective workers seeking jobs, employers should be having to pay up to attract new employees and keep the ones they have. One theory about what’s going carries the name monopsony.

It’s when there are many providers of a product (including labor) but only one dominant buyer, who holds all the cards and can drive prices down. In the labor market context, it means workers have lost the bargaining power they need to push for higher pay. Monopsony power was a feature of the company towns that helped define the Industrial Revolution, since everybody served one employer. More recently, the concentration of many industries into fewer and fewer dominant players, combined with the decline of labor unions, may have tilted negotiating ability away from workers and toward corporations.