The Dynamics of Power in Labor Markets: Monopolistic Unions Versus Monopsonistic Employers

67 Pages Posted: 5 Jan 2022

See all articles by Samuel Dodini

Samuel Dodini

Norwegian School of Economics (NHH)

Kjell G. Salvanes

Norwegian School of Economics (NHH) - Department of Economics; IZA Institute of Labor Economics

Alexander Willén

Norwegian School of Economics (NHH) - Department of Economics

Multiple version iconThere are 3 versions of this paper

Date Written: 2021

Abstract

This paper brings together the modern literatures on monopsony power and labor unions by empirically examining the effects of unionization on the dynamics of worker earnings across differently concentrated markets. Exploiting tax reforms to union due deductions as exogenous shocks to unionization, we demonstrate that there is a steep unionization gradient over labor market concentration. We show that there is an equally steep gradient in the union wage premium over concentration and that the premium loads almost exclusively on highly concentrated markets. This result implies a potentially important role of unions as alleviating market failures induced by imperfect competition. To validate our findings and examine robustness to different types of shocks, we extend the analysis by exploiting the emergence of import competition from China as an exogenous shock to employer concentration. This analysis suggest that the negative earnings effect of labor market concentration is eliminated upon reaching a union density of approximately 63 percent at the firm.

Keywords: monopsony, skills, unions, market power

JEL Classification: J230, J240, J420, J510, J520, J630

Suggested Citation

Dodini, Samuel and Salvanes, Kjell G. and Willén, Alexander, The Dynamics of Power in Labor Markets: Monopolistic Unions Versus Monopsonistic Employers (2021). CESifo Working Paper No. 9495, Available at SSRN: https://ssrn.com/abstract=3998033 or http://dx.doi.org/10.2139/ssrn.3998033

Samuel Dodini (Contact Author)

Norwegian School of Economics (NHH) ( email )

Helleveien 30
Bergen, NO-5045
Norway

Kjell G. Salvanes

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
N-5035 Bergen
Norway
+47 5 595 9315 (Phone)
+47 5 595 9543 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Alexander Willén

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
N-5035 Bergen
Norway

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