Working Paper: NBER ID: w26239
Authors: Gregor Jarosch; Jan Sebastian Nimczik; Isaac Sorkin
Abstract: We develop a model where labor market structure affects the division of surplus between firms and workers. Using Austrian data we show that in more concentrated labor markets, workers are more likely to return to past employers. In our model, the possibility of these re-encounters endows firms with size-based market power since outside options are truly outside the firm: firms do not compete with their own vacancies. Hence, a worker's outside option is worse when bargaining with a larger firm, and wages depend on market structure. The quantified model suggests that such size-based market power could substantially reduce wages.
Keywords: Labor Market Structure; Wages; Market Power; Concentration; Bargaining
JEL Codes: E2; J01
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increased market concentration (D49) | Higher likelihood of worker reencounters with past employers (J63) |
| Higher likelihood of worker reencounters with past employers (J63) | Larger firms possess size-based market power (L11) |
| Larger firms possess size-based market power (L11) | Diminished outside options for workers (J29) |
| Diminished outside options for workers (J29) | Lower wages (J31) |
| Increased market concentration (D49) | Lower wages (J31) |
| Size-based market power (L11) | Economic inequality (D31) |
| Overall extent of competition in labor market (J49) | Wage levels (J31) |