Is inflation eroding monopsony?

I’m not a big advocate of the significance of the labor market monopsony hypothesis, but for the moment let’s just say it is true.

Now let high rates of price inflation enter the picture, say 5.4% a year.  Does this limit the relevance of the initial monopsony assumption?

Presuambly when the price inflation comes, the monopsonistic employers do not have to give their employees offsetting nominal wage hikes, to restore the previous real wage.  After all, by assumption, those employees don’t have anywhere else practical to go.  And normal theories of wage stickiness explain why this real wage reduction had not happened in the first place (it also would have required a nominal wage reduction, without the inflation).

OK, so consider that monopsony assumptions are relative to a prevailing wage.  An assistant professor might be subject to monopsony power if he is paid 95k a year, but not if he is paid 40k a year, as he could replicate that same salary at many alternate employments.  So inflation, by lowering real wages, also lowers the degree of monopsony.


Newly hired workers might be getting locked into new monopsonistic positions, if new nominal wage contracts reflect the new rate of inflation (will they?), but the older stock of workers is seeing falling real wages and in that sense is becoming more potentially mobile.

OK, so for advocates of the monopsony hypothesis, how much do real wages have to fall before monopsony becomes a minor rather than a major condition?

And…given that answer, if the rate of price inflation is the standard 2% a year, and if a worker stays in a given job, how many years have to pass before that worker’s real wage falls to the point that monopsony does not really apply any more?



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