Exploitation in Monopsony

A key feature of monopsony model is that a single firm pays its workers a wage (w) less than the marginal revenue product (MRP). This feature has been explained as a synonym of the single firm exploiting its workers since its creation by Joan Robinson [1]. By using a simple standard efficiency wage model of Yellen [2], this paper examines the conventional wisdom by showing that the firm pays workers w in the equilibrium of full employment, but paradoxically pays them w=MRP in the equilibrium of involuntary unemployment. According to the conventional wisdom that the result of w implies that workers are exploited by the firm, this finding indicates that the firm does not exploit its employees (w=MRP) when there are involuntary unemployed workers queuing for jobs, but paradoxically exploits workers (w) when there are no workers queuing for jobs. The finding is obviously counter-intuitive. This counter-intuitive finding reveals that the key feature of w in monopsony cannot be regarded as a proper theoretical basis for the issue of labor exploitation.