Strong Employers and Weak Employees: How Does Employer Concentration Affect Wages?

44 Pages Posted: 22 Mar 2018 Last revised: 8 Feb 2019

See all articles by Efraim Benmelech

Efraim Benmelech

Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER)

Nittai Bergman

Tel Aviv University; National Bureau of Economic Research (NBER)

Hyunseob Kim

Cornell University - Samuel Curtis Johnson Graduate School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: January 31, 2019

Abstract

We analyze the effect of local-level labor market concentration on wages. Using plant-level U.S. Census data over the period 1978–2016, we find that: (1) local-level employer concentration exhibits substantial cross-sectional variation; (2) consistent with labor market monopsony power, there is a negative relation between local-level employer concentration and wages that increases in magnitude over the sample period; (3) using merger activity as an instrument for local-level employer concentration, we find that increased concentration decreases wages; (4) the negative relation between labor market concentration and wages is stronger when unionization rates are low; (5) the link between productivity growth and wage growth is stronger when labor markets are less concentrated; and (6) exposure to greater import competition from China (the “China Shock”) is associated with more concentrated labor markets. These six results emphasize the role of local-level labor market monopsonies in influencing firm wage-setting.

Keywords: Monopsony, Wages, Labor Share, Productivity, Employer Concentration

JEL Classification: E24, J21, J23, J31, J42, J51

Suggested Citation

Benmelech, Efraim and Bergman, Nittai and Kim, Hyunseob, Strong Employers and Weak Employees: How Does Employer Concentration Affect Wages? (January 31, 2019). Available at SSRN: https://ssrn.com/abstract=3146679 or http://dx.doi.org/10.2139/ssrn.3146679

Efraim Benmelech (Contact Author)

Northwestern University - Kellogg School of Management ( email )

Evanston, IL 60208
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Nittai Bergman

Tel Aviv University

Ramat Aviv
Tel-Aviv, 6997801
Israel

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Hyunseob Kim

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

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