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Employment Protection Legislation.

represents the artificial restriction of production by an entity having sufficient “market power” to do so. The economics of monopoly are most easily seen by thinking of a “monopoly markup” as a privately imposed, privately collected tax. This was, in fact, a reality a few centuries ago when feudal rulers sometimes endowed their favorites with monopoly rights over certain products. The recipients need not ever “produce” such products themselves. They could contract with other firms to produce the good at low prices and then charge consumers what the traffic would bear (so as to maximize monopoly profit). The difference between these two prices is the “monopoly markup,” which functions like a tax. In this example it is clear that the true beneficiary of monopoly power is the one who exercises it; both producers and consumers end up losing.

Modern monopolies are a bit less transparent, for two reasons. First, even though governments still grant monopolies, they usually grant them to the producers. Second, some monopolies just happen without government creating them, although these are usually short-lived. Either way, the proceeds of the monopoly markup (or tax) are commingled with the return to capital of the monopoly firms. Similarly, labor monopoly is usually exercised by unions, which are able to charge a monopoly markup (or tax), which then becomes commingled with the wages of their members. The true effect of labor monopoly on the competitive wage is seen by looking at the nonunion segment of the economy. Here, wages end up lower because the union wage causes fewer workers to be hired in the unionized firms, leaving a larger labor supply (and a consequent lower wage) in the nonunion segment.