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 . By using a simple standard efficiency wage
model of Yellen , 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.
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