MONOPSONY: TODAY'S NEW LABOR-MARKET REALITY

In today's largely nonunion labor market, the default model used by many economists and policy makers is that of textbook competition. The textbook model suggests a mutual balancing of worker and employer interests and implies that laissez-faire and deregulation is the appropriate policy norm, but in the 1930s and before, the default model for a nonunion labor market was employer monopsony. There are many reasons to suppose that monopsony should be the default model again. A monopsonistic labor market-one where employers have market power-has a stabilizing effect at the macrolevel. Failure to recognize monopsony thus left macro policy makers surprised by the economic outcomes of the 1980s and 1990s. Yet, monopsony has a dark side in terms of income distribution and the provision by employers of wages and conditions at the microlevel. Laissez-faire and labor-market deregulation therefore cannot be the policy norm under monopsony.