Working Paper: NBER ID: w31014
Authors: Matthew E. Kahn; Joseph Tracy
Abstract: Over the last thirty years, there has been a rise in several empirical measures of local labor market monopsony power. The monopsonist has a profit incentive to offer lower wages to local workers. Mobile high skill workers can avoid the lower monopsony wages by moving to other more competitive local labor markets featuring a higher skill price vector. We present a Roy Model of heterogeneous worker sorting across local labor markets that has several empirical implications. Monopsony markets are predicted to experience a “brain drain” over time. Using data over four decades we document this deskilling associated with local monopsony power. This means that observed cross-sectional wage gaps in monopsony markets partially reflect sorting on worker ability. Going forward the rise of work from home may act as a substitute for high-skill worker migration from monopsony markets.
Keywords: No keywords provided
JEL Codes: J42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| monopsony power (J42) | lower wages (J31) |
| lower wages (J31) | migration to more competitive labor markets (J61) |
| slower population growth (J11) | decline in average skill level (F66) |
| monopsony power (J42) | wage disparities (J31) |
| monopsony power (J42) | slower population growth (J11) |