In the early 1930s economist Joan Robinson and classicist B.L. Hallward coined a term to describe a market dominated by a single buyer: monopsony. Robinson wanted a counterpart to monopoly to capture the reality that employers, as buyers of labor, can have market power. If firms face little competition for workers, they can push wages down and worsen working conditions.
For much of the twentieth century, mainstream economics taught a simple model of perfect competition: many firms, many workers, and no one powerful enough to set wages. Under that model, low pay should drive workers to other jobs, and policies like minimum wages would create unemployment by lifting pay above a market-clearing rate. Monopsony challenged that picture by directing attention to the buyer side of labor markets and showing that employers can influence wages even when they are not the only employer in town.
Monopsony used to be treated as a narrow exception — single-factory towns or markets for narrowly specialized skills. That view began to change in the 1990s. The famous study by David Card and Alan Krueger of New Jersey fast-food restaurants found that an increase in the minimum wage did not reduce employment. That finding contradicted the textbook prediction and helped revive interest in the idea that many employers have room to raise pay without losing many workers — a hallmark of monopsonistic power.
Arindrajit Dube’s book The Wage Standard brings together a growing body of research arguing monopsony is far more common than earlier thought, even in apparently competitive industries. Dube contends that employers routinely have real discretion over wages and that, left unchecked, that discretion suppresses pay. He traces the widening pay gap since the 1980s to erosion of countervailing forces: a flat federal minimum wage, weakened antitrust enforcement, declining union density, and corporate choices that deprioritized fairness in pay.
Dube identifies three structural reasons monopsony may be endemic: concentration, search frictions, and job differentiation.
– Concentration: Local labor markets for many occupations often involve only a few employers. Research suggests typical markets look more like three-firm markets than perfectly competitive ones. Limited employer options make it harder for workers to leave low-paying jobs instantly.
– Search frictions: Moving between jobs takes time, effort, risk, and information. Searching, applying, interviewing, and onboarding slow mobility. Those frictions create stable pools of workers that employers can draw from without fierce competition.
– Job differentiation: Jobs differ in ways beyond pay — commute, schedule, supervisor, workplace culture, and benefits matter. These nonwage factors create attachments that reduce turnover, giving employers leverage similar to brand loyalty in product markets.
On top of these structural forces, employers sometimes take active steps to limit worker mobility. No-poaching agreements, explicit or tacit, prevent firms from hiring each other’s staff and have been used to keep wages down. A widely reported example involved major tech firms in the early 2000s, when an internal complaint about recruitment across firms surfaced during a federal probe.
If monopsony is widespread, wages are shaped as much by power, institutions, and choices as by anonymous market forces. That perspective helps explain why otherwise similar firms in the same industry pay very differently: firms have discretion, not just adherence to a single competitive wage. Dube points to contrasts like UPS versus FedEx or Walmart versus Target as illustrations of how corporate decisions and policies can produce big pay gaps even within the same labor pool.
The policy implications are substantial. If employers have wage-setting power, then tools long debated by economists and policymakers matter in practice. Minimum wages, stronger antitrust enforcement on labor markets, revitalized collective bargaining, and public pressure can raise pay without the large job losses the simple competitive model predicts. Dube highlights recent wins — city and state minimum wage increases, the Fight for $15 campaign, and voluntary moves such as Amazon’s $15-an-hour minimum announced in 2018 — as signs these levers can shift pay.
Dube favors broader institutional changes as well. He supports sectoral bargaining, which sets industry-wide wage standards as in many other developed countries, and stronger enforcement against anti-competitive labor practices. Policies that reduce mobility frictions — better job search assistance and information, expanded childcare and transit, and portable benefits — would also weaken employer leverage.
Ultimately Dube frames stagnant wages and rising inequality not as inevitable market outcomes but as the consequences of choices: corporate strategies, regulatory priorities, and decades of policy and expert advice premised on a competitive-market ideal. If wage outcomes reflect those choices, society can choose different rules and institutions to check employer power and narrow pay gaps.
The Wage Standard argues that monopsonistic forces are pervasive in modern labor markets and that addressing them requires a mix of laws, institutions, and political will. It makes the case for treating labor-market power as a central policy problem rather than a niche theory, and for designing frameworks that produce fairer wages.