Monopsony, wage discrimination, and public policy

A vast number of empirical studies have found that monopsony power is pervasive in labor markets. In some circumstances, the exercise of monopsony results in wage discrimination that is not taste-based. Instead, it results from profit maximization in the presence of different labor supply functions of two distinct groups of workers. This paper examines the profit maximizing employment decisions of a monopsonist under these conditions, as well as the public policy regarding wage discrimination. The economic effects of the current statutes are also examined, as well as some policy recommendations to strengthen the prohibition of wage discrimination.