Monopsony in Movers: The Elasticity of Labor Supply to Firm Wage Policies

80 Pages Posted: 31 Aug 2020 Last revised: 4 May 2022

See all articles by Ihsaan Bassier

Ihsaan Bassier

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP); University of Massachusetts Amherst

Arindrajit Dube

University of Massachusetts Amherst

Suresh Naidu

Columbia University

Date Written: August 2020

Abstract

We provide new estimates of the separations elasticity, a proximate determinant of the labor supply facing a firm with respect to hourly wage, using matched Oregon employer-employee data. Existing estimates using individual wage variation may be biased by mismeasured wages and use of wage variation unrelated to firm choices. We estimate the impact of the firm component of wage variation on separations using both firm fixed effects estimated from a wage equation as well as a matched IV event study around employment transitions between firms. Separations are a declining function of firm wage policies: we find that the implied firm-level labor supply elasticities generated are around 4, consistent with recent experimental and quasi-experimental evidence, and that they are approximately 3 to 4 times larger that those using individual wages. Further, we find lower separations elasticities for low wage workers, high turnover sectors, and periods of economic downturn but with little heterogeneity by urban status or labor market concentration. We conclude that monopsonistic competition is pervasive, and largely independent of forces driving classical monopsony.

Suggested Citation

Bassier, Ihsaan and Dube, Arindrajit and Naidu, Suresh, Monopsony in Movers: The Elasticity of Labor Supply to Firm Wage Policies (August 2020). NBER Working Paper No. w27755, Available at SSRN: https://ssrn.com/abstract=3683639

Ihsaan Bassier (Contact Author)

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP) ( email )

Houghton Street
London WC2A 2AE
United Kingdom

University of Massachusetts Amherst

Arindrajit Dube

University of Massachusetts Amherst ( email )

Suresh Naidu

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

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