Working Paper: CEPR ID: DP16834
Authors: Samuel Donini; Kjell G. Salvanes; Alexander Willn
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 Codes: J23; J24; J42; J51; J52; J63
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Labor Market Concentration (J42) | Negative Earnings Effect (G14) |
| Union Density (63%) (J59) | Elimination of Negative Earnings Effect (G14) |
| Unions (J51) | Labor Rents vs Product Rents (J39) |
| Union Density (J50) | Annual Earnings (J31) |
| Union Density (J50) | Annual Earnings in Concentrated Markets (G19) |
| Union Density (J50) | Annual Earnings in Non-Concentrated Markets (G19) |
| Union Subsidies (H29) | Unionization in Monopsonistic Markets (J42) |