Effects of a monopsony on the economy 081490341
The purpose of this article is to identify the effects of the current economic issue of monopsony in the UK and how it affects and will continue to affect the UK. with particularly focus on the National Health Service monopsony as it currently has a monopsony on labour i.e. nurses and trainee doctors and buying medicine, an NHS monopsony is significant due to the fact that over the past years admissions to hospitals have reached new highs, and the effects of the monopsony will trickle down to the whole economy.
A monopsony occurs when there is one major employer/buyer in a market. If there is only one main employer of labour, then they have market power in setting wages and choosing how many workers to employ. The NHS is an example of monopsony in the labour market as it is the 5th largest employer on earth. They have a tremendous monopsony power to pay doctors, nurses and any other employees below the average market rate as they employ almost every junior doctor and nurse in the UK and it has been calculated by the BMA that there’s been up to a 30% pay cut In terms of doctors over the past decade, besides pay there are many other Things that are affected by the monopsony on labour, it can manifest in worse shift patterns, less say on where you work and worse treatment at work as they are more reliant on one employer. Monopsonies also tend to employ fewer people than there would be in a competitive labour market, this can be seen by how the uk has fewer doctors per person, compared to other countries in the organisation for economic co-operation and development which normally have less centralised oversight.
There are wide impacts on the Monopsony of the NHS with both positives and negatives.
Effects on the government:
Pros:
UK national health service can use its bargaining power to drive down the prices from pharmaceutical monopolies of routine drugs used in NHS treatments and ultimately this means that cost savings allow for more treatments within the NHS budget which in turn allow for more people to be taken care of and thus helping the economy as people get back to work faster instead of being off work due to medical reasons.
The oversight that the NHS has over all the treatments and drugs allows for lesser chances of a black market existing, and thus less work is done by the police force in trying to stop it which reduces these possible expenses.
The cheapness of the service makes it accesible to all as it is possible for every person of every race and class to get similar treatments which in turn errodes discrimination and class distinction, and creates a healthier working population overall.
The central oversight ensures the ethical control of the NHS which lessens the opportunities for corruption.
Cons:
The current effects on the government are that as there are currently a lot of shortages in the NHS and 80% nurses and 90% of doctors of them are filled with temporary staff which are paid 20% more than full time staff. which wastes £480 million a year, which could be saved and re-invested into other areas of the government or used to better the NHS.
Effects on consumers:
Pros:
the NHS being mostly free allows for the consumer to be treated without any economic cost for them, which would allow the consumer to spend the money on other things to better such as clothing, food or bills, which in turn would add more money into the economy.
Cons:
The NHS strikes which happen delay the treatment of patients which in turn either worsens the injury/disease, which would require more work to treat, which would increase treatment cost or for the disease to spread wider into the population and then more people would get off work due to being ill, and if a epidemic were to happen like the Coronavirus there would be more loss. Which would increase the economic loss of the work with the actual amount being too hard to calculate as you would have to take into account the cost of surveillance, treatment, government response cost and productivity loss, which in turn would affect the stock market and tourism. which would increase government spending and decrease the money going into the economy.
The waiting times are a problem as the the possible repercussions of the waiting are the same as in point 1.
Some drugs are unavailable in the NHS as the budget doesn’t allow for them to be used which causes cheaper alternatives to be used, which don’t have the same success rate, which in turn increases the mortality rate of certain treatments.
Effects to labour:
Cons:
The workers in the monopsony, get paid below their market value which in turn gives them decreased disposable income as they are being given a lower wage this shall in turn decrease spending power and consumers decrease in income will cause them to demand less, and as a result output of firms will decrease therefore causing a decrease in economic growth. (as shown in Graph below)
It will cause a decrease in those searching for employment as there is less of an incentive to work which will cause more of a drain on public infrastructure. and due to the monopsony power the employer has the choice of how many employees they want which results in nurses and doctors being unemployed or moving to different areas for employment.
Labour has to make unions to counteract the monopolistic employer. A union can represent workers and seek to increase the benefits to workers.If a trade union enters the labour market and becomes the monopoly supplier of labour, it can force the monopsonist to pay a wage at, or nearer to, the market rate, and employ more workers. If the wage is low, the work efficiency might decrease.
Source 1:
This shows that over the years that the share of profit has been decreasing to the worker and have been going to the businesses as they tend to maximise profits by hiring less people and paying them below market value, which in turn decreases the money going into the economy as less money is being spent as companies/rich people tend to save or invest in international firms which leaks money from the business cycle, but as a middle/lower class person tends to put it back into the economy by spending the money on goods, services.
Source 2:
From source 2 I found that monopsony reduces the aggregate welfare enjoyed by both the employer and worker taken together, as the employers gain is smaller than the loss that is inflicted on the workers. The diagram above illustrates both effects. The workers’ economic surplus is given by the area between the S curve and the horizontal line corresponding to the wage, up to the employment level. The employers surplus is the area between the horizontal line corresponding to the wage and the MRP curve, up to the employment level. The social surplus is the two sums combined.
The grey rectangle, in the diagram, is the part of the competitive social surplus that has been redistributed from the workers to their employer under monopsony. the yellow triangle is the part of the competitive social surplus that has been lost by both parties, as a result of the monopsonistic restriction of employment. This is total social loss and is called deadweight loss. It is a measure of the market failure caused by monopsony power, through a wasteful misallocation of resources.
I came to an overall conclusion from my theory and research into the subject that introducing new competition to the market would have a positive effect on the amount of nurses and doctors in the market, decreasing the time taken for procedures. But it would be at the cost of the rather cheap service as the NHS would lose its monopolistic power and thus the power it has over the pharmaceutical companies. And if the UK where to use a France like model of health care which is shown to be one of the best in the world, which would allow for a healthier population at the price of cheapness, but would allow for a much better system which would allow for the labour to be paid fairly and minimise inequality in pay and allow for fast treatments. which would allow for the economy to maintain a steady economic growth in the upcoming years with a healthy population which will have a positive effect on individuals in the UK as it increases employment and GDP per capita.
The health care in France uses a semi overseen format, which most medical practices are private and the consumer has a choice where to go, but the government reimburses the consumer from 70% to 100% for treatment and 15% to 100% for drugs. France spends about 11% of its Budget on health care which is a considerably higher amount than the UK but its at the price of a faster service and a healthier country. which would allow for more people to pay taxes as an elderly or sick person cant pay tax as they are unable to work.