Strong Employers and Weak Employees: How Does Employer Concentration Affect Wages?
44 Pages Posted: 22 Mar 2018 Last revised: 8 Feb 2019
Date Written: January 31, 2019
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
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