Question

Today, Wal-Mart employs more people- 1.7 million than any other private employer in the world. With size comes power: Wal-Mart's prices are lower and United Food and Commercial Workers International Union argues that Wal-Mart's wages are also lower than its competitors. Last year, the workers at a Canadian outlet joined the union and Wal-Mart immediately closed the outlet. But does Wal-Mart behave any worse than its competitors? When it comes to payroll, Wal-Mart's median hourly wage tracks the national median wage for general retail jobs. Based upon evidence presented in this article, does Wal-Mart function as a monopsony in labor markets, or is the market for retail labor more competitive? Explain.

Short answer

Wal-Mart does not function as a monopsony; it operates within a competitive labor market as indicated by its median wage tracking the national median.

Step-by-step solution

Understanding Monopsony

A monopsony in labor markets exists when a single employer has significant control over the market and can set wages lower than in a competitive market due to lack of competing employers.

Evidence from Labor Market

Identify the evidence provided: Wal-Mart employs 1.7 million people, has lower prices, and is argued to have lower wages compared to its competitors. Additionally, a Canadian outlet closed after workers joined a union.

Analyzing Wages

Note that Wal-Mart's median hourly wage tracks the national median wage for general retail jobs. This suggests Wal-Mart is not setting wages significantly lower than the market average.

Competitive Market Indicators

For a competitive market, several employers would offer similar job opportunities and wages, indicating that no single employer can influence wage levels drastically.

Conclusion

Given that Wal-Mart's median wage tracks the national median for retail jobs, Wal-Mart does not appear to function as a monopsony. Instead, the retail labor market seems more competitive, with wages established by broader market forces.

Key concepts

monopsony

A monopsony occurs when a single buyer, in this case, an employer, has significant control over the market. In labor markets, this means that one company is the primary or sole employer for a large number of workers.
This control allows the company to set lower wages because there are fewer competing employers offering similar jobs. For example, if Wal-Mart were a monopsony in its labor market, it could set lower wages since workers wouldn't have many alternatives nearby.
However, based on the exercise, Wal-Mart's median hourly wage is similar to the national median wage for general retail jobs. This implies Wal-Mart isn't setting wages much lower, showing less monopsony power in the labor market.

labor markets

Labor markets refer to the supply and demand for labor, where workers provide the supply and employers provide the demand. The balance between these forces determines wages and employment levels in a particular sector.
In a competitive labor market, multiple employers compete for workers, which helps ensure fair wages and better job conditions. Workers have more choices, and this competition prevents any one employer from having too much control.
In contrast, if a market is uncompetitive, with fewer employers, workers might have to accept lower wages and worse conditions. Looking at Wal-Mart's case, the fact that its wages are close to the national median suggests the retail labor market is relatively competitive.

median wage

The median wage is the midpoint in a list of wages, where half the workers earn more and half earn less. It's a useful measure to understand typical earnings in any labor market.
For Wal-Mart, the median hourly wage tracking the national median for retail jobs indicates that their wages are neither exceptionally high nor low.
This comparison helps show that Wal-Mart conforms to the broader wage trends in the retail sector, suggesting they don't dominate the market to the extent that they can drastically lower wages.

competitive market

A competitive market is one where numerous employers and employees interact freely, with wages and job conditions being set by market forces of supply and demand.
In such markets, employers cannot easily set wages below the market rate because workers can find similar jobs elsewhere. This competition promotes better wages and working conditions.
Given that Wal-Mart's wages are in line with the national median, it suggests the market for retail labor is competitive. Many employers likely provide similar opportunities, preventing Wal-Mart from lowering wages solely based on its market size.