Monopsony with Recruiting
68 Pages Posted: 9 Jan 2025 Last revised: 14 Nov 2024
Date Written: November 13, 2024
Abstract
We develop a tractable model of monopsony where firms use wages and recruiting expenditures to attract workers. The model predicts that firms' labor supply curves are elastic in the long run, consistent with evidence that firms pay higher wages while growing, but the wage premium at large firms is small. We confirm these predictions using the effect of export demand shocks on the wage growth of job switchers in Denmark. Our results imply that monopsony rents are dissipated by recruiting costs, which can reconcile existing estimates of monopsony power with the profit share of national income in rich countries.
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