Working Paper: NBER ID: w31149
Authors: David W. Berger; Kyle F. Herkenhoff; Andreas R. Kostl; Simon Mongey
Abstract: We contribute a theory in which three channels interact to determine the degree of monopsony power and therefore the wedge between a worker’s spot wage and her marginal product (henceforth, the wage markdown): (1) heterogeneity in worker-firm-specific preferences (nonwage amenities), (2) firm granularity, and (3) off- and on-the-job search frictions. We use Norwegian data to discipline each channel and then reproduce novel reduced-form empirical relationships between market concentration, job flows, wages and wage inequality. Our main exercise quantifies the contribution of each channel to income inequality and wage markdowns. The markdowns are 21 percent in our baseline estimation. Removing nonwage amenity dispersion narrows them by a third. Giving the next-lowest-ranked competitor a seat at the bargaining table narrows them by half. Removing search frictions narrows them by two-thirds. Each counterfactual shows decreased wage inequality and increased welfare.
Keywords: Monopsony; Labor Market; Wage Markdown; Inequality
JEL Codes: E02; J01; J42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| monopsony power (J42) | wage markdown (J31) |
| nonwage amenity dispersion (J31) | wage markdown (J31) |
| increased competition among firms (L11) | wage markdown (J31) |
| search frictions (F12) | wage markdown (J31) |