Monopsony— no, it’s not a typo— is the inverse of a monopoly, where instead of a monopolistic seller in a market, there is a monopsonistic buyer in a market.

What does that mean?

In an economic sense, a monopsony occurs when there is a shortage of purchasers (employers) in a market, including that for hiring (in effect ‘buying’ or ‘purchasing’) workers.

Why does it matter?  Hiring levels impact wages and many people have long felt that their pay has not kept up with the cost of living.

Research into higher average corporate profit rates has led economists to question whether the increased profitability is driven by greater leverage in the markets they sell into (Monopoly) or in the markets they buy components from (Monopsony).  The devil is in the details.  Further research shows the rise in profitability is driven by the largest firms.  It is clear that labor’s share of income, the portion of economic output that goes to workers, has declined about 5% since 1980 in the U.S. and worldwide.

Many issues contribute to an overall feeling that inflation has run away from income, though one thing is certain: growth in skills and job training, along with new investment in domestic manufacturing, will create a greater number of higher-paying, career-building jobs.

The benefits of domestic manufacturing are immense- the manufacturing sector has one of the highest dollar multipliers, with $2.69 added to our economy for every $1.00 spent, and employment multipliers, with over 744 indirect jobs created for every 100 direct durable manufacturing jobs, of any industry.  Who says it’s not worth looking at the label for Made in the USA?!

I’ve included a great Chicago Booth article detailing how monopsonistic trends may affect our economy.  It’s worth reading.  Care for a game of Monopoly or Monopsony?  Let me know what you think!  Connect with me by clicking here.

~ Brian Kasal- The Leadership Matrix

Click here- Are Employers Playing a Game of Monopsony?

P.S.- Did you see my last Leadership Matrix post?  Click here to see it- Knitting a Stronger Safety Net

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