8.3.8—Wages in imperfect labour markets

In an imperfect labour market, one or more employers or worker groups have bargaining power, information advantages or barriers to movement, so the wage is not set by a simple market-clearing intersection.

A monopsony faces an upward-sloping labour supply and may hire where marginal labour cost equals marginal revenue product, paying a wage below the competitive level. Trade unions can raise wages or improve conditions, but effects depend on bargaining power and demand elasticity.

A dominant local hospital may face little competition for nurses; a union can counterbalance that power, though a large wage rise may reduce employment if labour demand is elastic.

Imperfect competition does not always mean lower wages: collective bargaining or professional scarcity can raise them.