Aggregate demand can reduce monopsonistic exploitation

Ian M. McDonald

Review of Keynesian Economics, 2025, vol. 13, issue 3, 339-351

Abstract: In an aggregate setting with widespread monopsony, monopsonistic exploitation of workers decreases if aggregate demand increases, up to zero when the full employment constraint is met. Exploitation is also reduced by an increase in union power or by the imposition of a binding minimum wage. However, both will decrease employment. This is due to the negative effect of wages on investment. Being a Keynesian model, this negative effect can be offset by an increase in aggregate demand. Monopsony power can be a microeconomic foundation for Keynesian aggregate demand theory and should be recognised as a component of Keynesian macroeconomics.

Keywords: Monopsony; Keynesian unemployment; Trade union power; Minimum wages (search for similar items in EconPapers)
JEL-codes: E12 E24 E31 J21 J51 (search for similar items in EconPapers)
Date: 2025
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