Is Monopsony the Right Way to Model Labor Markets? A Review of Alan Manning’s Monopsony in Motion

Manning proposes that the ‘traditional’ monopsony model, once regarded as an analytical curiosity, be adopted as a widely-applicable description of firms’ behavior in labor markets. In Manning’s view, search frictions in the labor market generate upwardsloping labor supply curves to individual firms even when firms are small relative to the labor market. Thus a model of ‘monopsonistic competition’ best characterizes labor markets as a whole. Manning’s book applies this new perspective to a wide range of ‘traditional’ topics in labor economics, ranging from labor supply, to gender discrimination, to the effects of trade unions on wages and employment, generating refreshing new insights in each case. Ultimately, however, this reader was left unconvinced that monopsony is the ‘right’ model of most firms’ labor market behavior in the long run.