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

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: Suggested Citation

Benmelech, Efraim and Bergman, Nittai and Kim, Hyunseob, Strong Employers and Weak Employees: How Does Employer Concentration Affect Wages? (November 28, 2019). Available at SSRN: https://ssrn.com/abstract=3146679 or http://dx.doi.org/10.2139/ssrn.3146679