An Anatomy of Monopsony: Search Frictions, Amenities and Bargaining in Concentrated Markets

55 Pages Posted: 17 Apr 2023 Last revised: 11 Aug 2024

See all articles by David W. Berger

David W. Berger

Duke University, Fuqua School of Business-Economics Group

Kyle Herkenhoff

University of Minnesota - Minneapolis

Andreas Kostøl

Arizona State University (ASU) - W.P. Carey School of Business; Statistics Norway; Norges Bank; IZA Institute of Labor Economics

Simon Mongey

University of Chicago

Multiple version iconThere are 2 versions of this paper

Date Written: April 2023

Abstract

We contribute a theory in which three channels interact to determine the degree of monopsony power and therefore the wedge between a worker’s spot wage and her marginal product (henceforth, the wage markdown): (1) heterogeneity in worker-firm-specific preferences (nonwage amenities), (2) firm granularity, and (3) off- and on-the-job search frictions. We use Norwegian data to discipline each channel and then reproduce novel reduced-form empirical relationships between market concentration, job flows, wages and wage inequality. Our main exercise quantifies the contribution of each channel to income inequality and wage markdowns. The markdowns are 21 percent in our baseline estimation. Removing nonwage amenity dispersion narrows them by a third. Giving the next-lowest-ranked competitor a seat at the bargaining table narrows them by half. Removing search frictions narrows them by two-thirds. Each counterfactual shows decreased wage inequality and increased welfare.

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Suggested Citation

Berger, David W. and Herkenhoff, Kyle and Kostøl, Andreas and Mongey, Simon, An Anatomy of Monopsony: Search Frictions, Amenities and Bargaining in Concentrated Markets (April 2023). NBER Working Paper No. w31149, Available at SSRN: https://ssrn.com/abstract=4420564

David W. Berger (Contact Author)

Duke University, Fuqua School of Business-Economics Group ( email )

Box 90097
Durham, NC 27708-0097
United States

Kyle Herkenhoff

University of Minnesota - Minneapolis ( email )

110 Wulling Hall, 86 Pleasant St, S.E.
308 Harvard Street SE
Minneapolis, MN 55455
United States

Andreas Kostøl

Arizona State University (ASU) - W.P. Carey School of Business ( email )

Tempe, AZ 85287-3706
United States

Statistics Norway ( email )

N-0033 Oslo
Norway

Norges Bank ( email )

P.O. Box 1179
Oslo, N-0107
Norway

IZA Institute of Labor Economics ( email )

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

Simon Mongey

University of Chicago ( email )

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