Labor markets can get complicated when there's only one big employer and a union. This creates a bilateral monopoly, where both sides have power to influence wages and jobs.

In this setup, wages are usually higher than if the employer had all the power, but lower than in a competitive market. Employment levels are also affected, often ending up somewhere in between.

Bilateral Monopoly in Labor Markets

Monopsony and Union Power

• Single employer or limited number of employers in the labor market creates monopsony power allows the employer to set wages below competitive levels as they face an upward-sloping labor supply curve
• Unions negotiate on behalf of workers for better wages and working conditions can threaten collective action (strikes) to increase bargaining power

Wage and Employment Determination

• Unions and monopsonistic employers engage in collective bargaining process determines the wage rate and employment level
• Bargained wage rate is typically higher than the monopsony wage but lower than the competitive wage influences the level of employment
• Higher wage rates may lead to lower employment levels compared to the competitive market employment level is determined by the intersection of the marginal revenue product of labor (MRPL) and the bargained wage rate

Impact on Labor Market Outcomes

• Wage rates in a bilateral monopoly are typically higher than the monopsony wage rate but lower than the competitive wage rate exact wage rate depends on the relative bargaining power of the union and employer
• Employment levels in a bilateral monopoly are generally lower than the competitive employment level but higher than the monopsony employment level determined by the bargained wage rate and the MRPL
• Bilateral monopolies may lead to inefficient outcomes bargaining process may result in wages and employment levels that differ from the competitive equilibrium potential for deadweight loss due to reduced employment and higher wages

Bargaining Power Dynamics

• Union bargaining power factors include union membership and solidarity, ability to organize collective action (strikes), public support and political influence, and availability of alternative employment opportunities for workers
• Monopsonistic firm bargaining power factors include degree of labor market concentration, elasticity of labor supply, availability of substitute inputs (automation, outsourcing), and financial resources and ability to withstand work stoppages
• Economic conditions such as unemployment rate and labor market conditions and industry-specific factors (demand for products, market competition) influence bargaining power
• Legal and institutional factors like labor laws and regulations, right-to-work laws and union security agreements, and government intervention and mediation in labor disputes also impact bargaining power dynamics