Essay Perfectly competitive labour markets

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Explain three reasons why labour markets may be imperfectly competitive (15 marks)
There are many possible reasons for this and one of them is the effect of an employer using their monopsony power. A monopsony producer has buying power in the labour market when seeking to employ extra workers and may use that buying-power to drive down wage rates. The monopsonist knows that they face an upward sloping labour supply curve, in other words, to attract more workers in their industry, they must pay a higher wage rate – so the average cost of employing labour rises with the number of people taken on. Because the average cost of labour is increasing, the marginal cost of extra workers will be even higher, since we assume that an increase in the wage rate paid to attract one extra worker must also be paid to existing workers. The profit maximising level of employment is where the marginal cost of labour equates with the marginal revenue product of employing extra workers. Workers are taken on, but the monopsonist can employ these workers at an average wage rate at a level below the marginal revenue product of the last worker. In this sense, the monopsonist is exploiting labour by not paying them the full value of their marginal revenue product. Trade unions may seek to counter-balance the monopsony power of an employer by controlling aspects of the labour supply and by using whatever collective bargaining power they possess to negotiate wages higher without being at the expense of employment levels.
In a perfectly competitive labour market, there would be a homogeneous labour force, however, there is not: people have individual skill differences. The main determinant is the level of skill required in the given industry. In low skill industries, a rise in the real wage rate will probably cause a proportionately larger rise in the supply of labour into that industry, ceteris paribus. Not only is there a bigger pool of unskilled workers generally (many of which may be unemployed), but there will be many other industries in the economy that only require low skill levels, from which workers can move to the industry whose relative wage has risen. Wage rates in low skill industries are often fairly similar, given that the productivity levels in these industries are fairly similar (the workers MRPs are similar). So, the rise in the wage rate for one of these industries does not have to be very large to attract a large number of workers from the other industries.
Occupational immobility occurs when there are barriers to the mobility of factors of production between
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