hi everybody let's now in this video consider the impact of trade unions in monopsony-controlled labor markets the diagram really is at the heart of everything in this Theory but it's one of the most complicated diagrams in the entire course not very helpful but in this video I'm going to break it down for you I'm going to make it really simple for you to smash it when it comes to using it in your exams and in your essays what I started with here is the basic monopsony labor market and we can see the end outcomes the quantity of work is way less than competitive quantities and the wages on offer way less than competitive wages outcomes what I used to considering my previous video on monopsony great stuff now let's see what a trade Union will do in impacting this market and getting involved in this Monopoly Market first let's remind ourselves what do trade unions do well trade unions bargain for higher wages and assuming that trade unions are strong they control the supply of labor at given wage rates so a trade Union looking at this will say whoa monopsonist you are offering a wave rate that's grossly unfair for all the workers here a wage rate way less than the marginal revenue product of workers workers are getting a rough deal here so we're going to come in and we're going to bargain for a higher wage so the Trade union will say forget WM we want a wage rate of wtu for our workers and let's say it's there wtu at wage rate the monopsonist becomes a wage taker up until a limit and we know from my previous video on trade unions at that trade Union wage there is a limit to the number of workers that'll be willing to work at that new wage rate and that limit can be found by taking that wage rate across to our supply and that takes us to them let's remind ourselves why while at that wage rate you can see that all of the workers on the supply curve beneath the black dot are very very very happy with this wait rate they would have been willing to work at a wage rate less than wtu so now with the Trade union representing them bargaining for a wage of wtu they're extremely happy to work at that wage rate so the Trade union is controlling the supply of these workers so now for a monopsonist to employ workers up until this point they have to take the Trade union wage assuming that the Trade union is strong of course and has a high uni density which means that the supply curve now for this monopsonist is going to be horizontal the monopsonist becomes a wage taker so we can draw the supplier which is horizontal up until that limit there but that's not just the supply code that is also now the average cost of Labor curve and it's the marginal cost of Labor curve as well because for the monopsonist employing workers up until this limit each worker is being paid the same wage of wtu so the marginal cost now is constant at wtu so this black line is now the new supply curve is the new average cost of Labor cup and it's the new marginal cost of Labor curve up until this black dot Beyond this black dot though if the monopsonist wants to employ more workers they need to increase the wage to attract workers into this industry the supply curve tells us that and that means that Beyond this black dot the supply curve reverts back to the original supply curve which now looks like that and we can label this black line our new Supply curves we want that Supply Trade union which is equal to the average cost of labor now so that is our new Trade union supply curve in this monopsony control labor market and it's got a kin to it but the reasons I've said very simply Beyond this black dot the monopsonist needs to increase the wage to attract more workers to work for them but crucially the monopsonist doesn't just increase the wage for the next worker beyond the black dot no as soon as the monopsonist increases the wage Beyond this black dot to attract more workers to take jobs for them they are increasing the wages for everybody all the workers that came before that worker as well which means that this black dot the marginal cost of Labor reverts back to its original so this black dot here the marginal cost of Labor was there and now the marginal cost of Labor goes back to its original because again the monopsonist doesn't just increase the wage of the next worker to attract that worker to work for the monopsonist no as soon as the monopsonist raises the wage they have to raise the wage for every worker working for them so the marginal cost of Labor curve now goes back to the original much much higher a big jump of course and you can see that the marginal cost of Labor curve has got a massive discontinuity in it don't let that fool you don't let that surprise you or shock you or worry you all you need to do is to connect the dots here to get the overall marginal cost of Labor okay and that gives us an MCL curve that looks like that so again we can label this total black line now as our marginal cost of Labor but our Trade union marginal cost of laser curve so what we have beyond the black line are a few differences we get a kink in our supply curve and we get a vertical discontinuity in our marginal cost of Labor curve nothing to worry about that's just what happens and hopefully now you understand why these Supply curves uh the average cost curve and the marginal cost curve look very funky in this diagram right here but now having drawn these two curves the average cost and the marginal cost curve we can now go back to our original monopsony condition and understand where the quantity of workers comes from the monopson is we know given these are new conditions now giving these new curves will still hire up until where MRP equals the marginal cost of Labor that maximizes the profit that the monopsonist brings in from hiring workers and that point occurs here when MRP equals the marginal cost of Labor and that gives us a quantity of workers call it to you so that's now employment in the monopsony great we're done with this diagram now we need to analyze the outcomes what is this Trade union doing what is it done to this labor market to this Monopoly control labor market well it's pretty clear to see that wages have increased and that's not a surprise that's exactly what trade unions are all about they are increasing wages in this market absolutely but whereas before in my previous video we said that trade unions will actually reduce the quantity of workers in competitive labor market labor markets but when the labor market is controlled by monopsonists what's happening to employment we can see clearly that employment is actually increasing wages are increasing and employment is increasing trade unions are actually doing a great thing in this imperfectly competitive market in this Monopoly control labor market they're increasing wages closer to competitive labor market outcomes but they're also increasing employment increasing the quantity of workers towards the competitive labor market outcomes as well so trade unions are improving efficiency in monopsony control labor markets revolutionary stuff here very different to what we're used to say about trade unions so that tells you that when there is a monopsony employer out there trade unions getting involved can actually be really beneficial can be very efficient trade unions here have got significant value and when it comes to writing an essay really powerful evaluation guys we'll be working out significantly what value trade unions have and we can answer that question if we know how strong monopsony power is remember from my previous video how do we measure monopsony power well we look at what wages are and we compare that to MRP if there is a huge difference between the wage on offer by the monopsonist and MRP that means the monopsonist has got significant control so the bigger the difference if a trade Union gets involved the bigger the benefit the Trade union will bring in this market the greater the efficiency gains that the Trade union gets involved in bargaining for higher wages and also increasing the quantity of workers so that explains what a trade Union can do when a monopsony is controlling a labor market very very powerful stuff I hope now you understand it and understand all these Kings and vertical discontinuities hopefully very simple stuff but these end outcomes guys is why you need to focus once you can nail this down thank you so much for watching guys hopefully you found that really interesting I will see you all in the next video