Work, Wages & Labour: Monopsony
Why Your Boss Has More Power Over Your Pay Than the Market Does
The reason your wages feel stuck might have nothing to do with what you're worth — and everything to do with how few employers are actually competing for you.
The Idea
Most of us learn a simple story about wages: workers sell their labour, employers compete for it, and the price settles where supply meets demand. If you want more, you move. The market sorts it out. This story rests on a hidden assumption — that you have many employers to choose from. When that assumption breaks down, so does the whole picture. That breakdown has a name: monopsony. Where monopoly means one seller dominating a market, monopsony means one buyer dominating it. In labour markets, the buyer is the employer. A true monopsonist is rare — a coal company that owns the only mine in a remote valley, or a hospital system that employs every nurse in a small city. But economists now understand that mild monopsony power is surprisingly widespread. You don't need a single dominant employer; you just need enough friction — geographic, professional, informational — to make switching costly. When workers can't easily leave, employers don't need to bid wages up. They can pay below what a genuinely competitive market would deliver, and workers absorb the loss because the alternative is worse. This isn't a conspiracy. It's a structural feature of how labour markets actually work, especially in specialised fields, rural areas, and sectors with non-compete agreements. The insight matters because it reframes low wages not as a natural reflection of low value, but as evidence of constrained choice.
In the World
In 2018, a group of economists — José Azar, Ioana Marinescu, and Marshall Steinbaum — published a study that quietly upended how many labour economists thought about wages. They analysed millions of job postings across hundreds of US labour markets and found that the majority were highly concentrated: a small number of employers were doing most of the hiring in most occupational categories. In roughly sixty percent of the markets they examined, concentration levels were high enough that antitrust regulators would have scrutinised a merger in a product market. The economists found a direct relationship between employer concentration and wages — the more concentrated the market, the lower the pay, after controlling for everything else. This wasn't happening in coal towns or remote islands. It was happening in ordinary cities, in healthcare, retail, and logistics. Nursing is a particularly well-studied case. Hospitals in a metro area look like competing employers, but nurses — who have specific qualifications, family roots, and licensing tied to a state — can't easily relocate. The employers know this. Research on US nursing markets has repeatedly found wage suppression consistent with monopsony power. The individual nurse doesn't experience this as coercion. She just experiences it as: this is what nurses get paid here. The structural ceiling is invisible precisely because she never sees the auction that never happened.
Why It Matters
Understanding monopsony changes how you read your own situation. If you've ever felt underpaid but couldn't quite articulate why — you apply for other roles, the offers come back similar, and you conclude this must simply be what you're worth — monopsony offers a different explanation. The market isn't failing to value you; the market is thin, and thinness compresses wages. This matters practically when you're deciding whether to invest in skills that deepen your specialisation in one sector versus skills that make you more portable across sectors. Portability is a hedge against monopsony. It also matters when you think about geography: moving to a denser labour market — more employers, more options — isn't just about opportunity, it's about restoring the competitive pressure that makes wages rise. And it reframes the policy debates you'll hear about minimum wages, non-compete clauses, and union bargaining. These aren't just ideological positions; they're responses to a real structural imbalance. When the buyer side of the labour market has disproportionate power, rules that shift some of that power back to workers aren't distorting the market — they're correcting for the fact that the market was already distorted.
A Question to Ponder
How many employers could realistically hire you for the work you do today — and what would it take to double that number?
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