Exploitation in Monopsony

A key feature of monopsony is that a single firm pays its workers a wage ( w) less than the marginal revenue product (MRP ). Ever since its creation by Joan Robinson (1933), this feature has been explained as a symbol of the monopsonistic firm exploiting its workers. By using a simple standard efficiency wage model of Yellen (1984), this paper examines the conventional wisdom by showing that the firm pays workers w < MRP (exploits workers?) in the equilibrium of full employment, but paradoxically pays them w = MRP (does not exploit workers?) in the equilibrium of involuntary unemployment. The finding is obviously counter-intuitive. A deeper exploration shows that the key feature of w < MRP in monopsony cannot be regarded as a solid theoretical basis for the issue of labor exploitation.