Employer Concentration and Outside Options
155 Pages Posted: 15 Jun 2020 Last revised: 18 Feb 2021
Date Written: January 18, 2021
This paper studies the effect of employer concentration on wages in the United States. We make two primary new contributions. First, we develop an instrument for employer concentration, based on differential local exposure to national firm-level trends. We use the instrument to estimate the effect of plausibly exogenous variation in employer concentration on wages across the large majority of U.S. occupations and metropolitan areas. Second, we adopt a flexible “probabilistic” approach to labor market definition, identifying relevant job options outside a worker’s own occupation using new occupational mobility data constructed from 16 million resumes, and estimate the effect of these outside-occupation options on wages. We find that moving from the median to the 95th percentile of employer concentration reduces wages by 3%. But we also reveal substantial heterogeneity: the effect of employer concentration is at least four times higher for low outward mobility occupations than those with high outward mobility. Since the majority of U.S. workers are not in highly concentrated labor markets, the aggregate effects of concentration on wages do not appear large enough to have substantial explanatory power for income inequality or wage stagnation. Nonetheless, our estimates suggest that a material subset of workers experience meaningful negative wage effects from employer labor market power. Our findings imply that labor market regulatory agencies and antitrust authorities should take employer concentration seriously, but that measures of employer concentration – typically calculated for narrowly defined occupational labor markets – need to be adjusted to incorporate the availability and quality of job options outside the focal occupation.
Keywords: monopsony, labor markets, concentration, outside options
JEL Classification: E24, J31, J42, J62
Suggested Citation: Suggested Citation