Monopsony in the New Zealand Labour Market: First Estimates from Administrative Data

Abstract

We examine employer monopsony power in the New Zealand private sector labour market. New Zealand has a small, geographically dispersed population, meaning that outside employment options for workers may be limited. However, New Zealand is generally considered to have a flexible labour market with large gross labour market flows. Using firm and individual level microdata from StatsNZ's Longitudinal Business Database (LBD) and Integrated Data Infrastructure (IDI), we estimate monopsony power based on separation elasticities, on the estimated marginal product-wage wedge, and by direct estimation of firm-level labour supply elasticities. Estimates based on separation elasticities and the marginal product-wage wedge are reasonably consistent, with an implied wage markdown of at most 25%, on average. Direct estimates of labour supply elasticities are sensitive to small changes in specification, highlighting the identification difficulties. Our estimates based on separation elasticities and marginal product-wage wedges are broadly consistent with recent international evidence. These results suggest the presence of employer monopsony power in New Zealand's private sector, although the extent of that power may be limited.

Keywords: monopsony, wage setting, worker mobility

JEL Classification: J42, J63, M50, D20