Minimum Wages in Concentrated Labor Markets

Martin Popp

No 214, Working Papers from Bavarian Graduate Program in Economics (BGPE)

Abstract: Economists increasingly refer to monopsony power to reconcile the absence of negative employment effects of minimum wages with theory. However, systematic evidence for the monopsony argument is scarce. In this paper, I perform a comprehensive test of monopsony theory by using labor market concentration as a proxy for monopsony power. Labor market concentration turns out substantial in Germany. Absent wage floors, a 10 percent increase in labor market concentration makes firms reduce wages by 0.5 percent and employment by 1.6 percent, reflecting monopsonistic exploitation. In line with perfect competition, sectoral minimum wages lead to negative employment e ects in slightly concentrated labor markets. This effect weakens with increasing concentration and, ultimately, becomes positive in highly concentrated or monopsonistic markets. Overall, the results lend empirical support to the monopsony argument, implying that conventional minimum wage e ects on employment conceal heterogeneity across market forms.

Keywords: minimum wage; labor market concentration; monopsony; labor demand (search for similar items in EconPapers)
JEL-codes: D41 J23 J38 J42 (search for similar items in EconPapers)
Pages: 102 pages
Date: 2021-12
New Economics Papers: this item is included in nep-com and nep-lma
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:bav:wpaper:214_popp

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