Labor Market: Monopolistic Exploitation by Firms and Employees

Abstract

Based on the author's previous paper entitled “A Reconsideration of the Theory of Perfect Competition”, which demonstrates the monopolistic nature that even purely theoretically perfect competition has, this paper identifies the factors that determine the equilibrium in the labor market as well as their impact.The non-perfectly elastic demand curve for the product of the firm results in a labor demand curve that does not reflect the Value of Marginal Product (VMP) of the labor, but the Marginal Revenue Product (MRP). This implies an exploitation of monopolistic form of the labor and lower levels of wage and employment even in perfectly competitive markets. On the other side, the employees exploitation of their monopolistic power on labor through labor unions, for the maximization of the collective benefit they can get from the demand of their labor, leads to even lower employment levels and to aggravation of the unemployment.In conclusion, there is an inevitable deviation of the social welfare from its optimal state, due to the labor market, which is an unavoidable consequence of the monopolistic-form exploitation that both, firms and employees, exert on the good they provide in the market - namely the product for the firms and the labor for the employees - in order to maximize their benefit.