In the early 1930s, economist Joan Robinson sat down for tea with B.L. Hallward, a scholar of ancient Greece. Robinson wanted a word for a market dominated by a single buyer — a concept important to labor markets because employers buy labor. Hallward suggested a Greek-rooted counterpart to “monopoly,” and they coined “monopsony.” The idea: when employers face limited competition for workers, they gain power to set lower wages and worse conditions.
For decades, mainstream economics focused on perfect competition — the Econ 101 world of many firms, many workers, and no one with power to set prices or wages. In that model, if a firm underpays, workers leave for better offers, and minimum wages should, in theory, create unemployment by pushing wages above the market-clearing level. But Robinson’s notion of monopsony called attention to the buyer side of markets, especially labor, where employers can exercise power even without being the sole employer.
Monopsony was long treated as a rare exception — small towns with one big employer, or markets for highly specialized labor. That began to change in the 1990s. David Card and Alan Krueger’s influential study of New Jersey’s fast-food minimum wage found no job losses after a wage increase. The result challenged the textbook prediction and revived interest in the idea that many employers might have wage-setting power. If firms can pay more without shedding many jobs, that suggests employers have room to raise pay — evidence of monopsony.
Arindrajit Dube’s new book, The Wage Standard, synthesizes a growing body of research arguing that monopsony is far more widespread than once thought, even in industries that appear competitive. Dube says employers have substantial real power to set wages, and when that power goes unchecked it suppresses pay. He links the rise in inequality since the 1980s to the erosion of countervailing forces: a stagnant federal minimum wage, weaker antitrust enforcement, declining union power, and corporate shifts away from concern over pay fairness.
Why might monopsony be common? Dube describes a “triumvirate of endemic monopsony”: concentration, search frictions, and job differentiation.
– Concentration: Research shows that typical local labor markets for specific occupations often resemble markets with about three employers. That’s not a literal single employer, but it’s far from the perfect-competition ideal. Limited employer options mean workers can’t always quickly escape low pay.
– Search frictions: Job changes require time, effort, risk, and information. Finding openings, applying, interviewing, and onboarding create frictions that slow mobility. Those frictions create “puddles” — labor pools that employers can draw from without intense poaching.
– Job differentiation: Jobs differ beyond pay. Commute, schedule, manager, coworkers, workplace culture, and other nonwage attributes make some positions uniquely valuable to certain workers. Those attachments reduce turnover even when pay is lower, giving employers wage-setting clout similar to brand loyalty in product markets.
Beyond these structural factors, employers sometimes collude to restrict worker mobility. No-poaching agreements — explicit or tacit pacts to avoid hiring each other’s workers — have been used to keep wages down. One notorious example in the early 2000s involved major tech firms. During a federal probe, an email surfaced from Steve Jobs to Google’s CEO complaining about Google recruiters contacting Apple engineers; the recruiter was later fired.
If monopsony is widespread, wages are shaped by power, institutions, and choices more than pure market forces. That helps explain why otherwise similar firms in the same sector can pay very differently. Dube points to UPS and FedEx: similar routes and labor pools, but notably different pay. The same contrast appears between Walmart and Target. Differences like these are easier to explain if firms have discretion to set pay rather than being bound by a competitive market wage.
The policy implications are big. If monopsony matters, then minimum wages, antitrust enforcement, union strength, and public pressure can meaningfully raise pay without the job losses predicted by the simple competitive model. Dube highlights recent efforts that have already nudged markets: city and state minimum wage increases and campaigns like the Fight for $15, which helped push Amazon to adopt a voluntary $15-an-hour minimum in 2018.
Dube’s policy agenda also emphasizes revitalizing collective bargaining. He favors sectoral bargaining — setting industry-wide pay standards, as practiced in many other industrialized countries — which could counter employer power across entire industries, not just at individual firms. Strengthening enforcement against anti-competitive labor practices, improving job search assistance and information flow, and policies that reduce mobility frictions (childcare, transit, portable benefits) are other levers.
Ultimately, Dube frames the problem as a matter of choices. Stagnant wages and rising inequality weren’t inevitable outcomes of impersonal markets; they resulted from corporate decisions, policy choices, and expert advice that often assumed markets were already working well. To narrow the pay gap, society can choose different rules and institutions that check employer power.
The Wage Standard makes a persuasive case that monopsonistic forces pervade modern labor markets and that addressing them requires a combination of laws, institutions, and political will. It’s an argument for treating labor-market power as a central policy concern rather than a niche theoretical curiosity — and for deliberately choosing frameworks that produce fairer wages. It would be ironic if a book about widespread buyer power had only one buyer — maybe give it a read.