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Monopsony and Higher Education

If there’s only one employer in town, the employee’s bargaining power is relatively low.

That’s the empirical claim behind the idea that monopsony — a monopoly of demand for employees by a single employer in a given region or area — has a dampening effect on wages. Given the cost to family life of moving, employees will frequently settle for a suboptimal deal for the opportunity to stay put. In two-earner families, that cost isn’t just emotional. A move would require finding two jobs in a new location, rather than one, increasing the difficulty exponentially. Over time, those individually rational decisions add up.

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