City Size, Employer Concentration, and Wage Income Inequality

Martin Korpi () and Daniel Halvarsson ()
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Martin Korpi: The Ratio Institute, Postal: The Ratio Institute, P.O. Box 5095, SE-102 42 Stockholm, Sweden, https://ratio.se/
Daniel Halvarsson: The Ratio Institute, Postal: The Ratio Institute, P.O. Box 5095, SE-102 42 Stockholm, Sweden, https://ratio.se/

No 363, Ratio Working Papers from The Ratio Institute

Abstract: In this paper, we build upon a monopsony framework, suggested by Card et. al. 2016, which links firm level productivity and rent-sharing to wage inequality. Specifically, our research questions address i) to which extent labor market concentration across firms (within different types of locally situated industries) affects variation in wages among workers within these firms and industries, and ii) how this variation in turn spills over into economy-wide inequality (measured at the level of local labor markets). Using linked employer-employee full population data for Sweden, and an AKM modelling framework to separate between worker and firm-level heterogeneity, our results suggest that higher firm-level fixed effects (a measure of rent-sharing) is associated with lower labor market employer concentration, something which affects average wage income among firms accordingly. Addressing wage income inequality by applying our model to different segments of the local labor market income distribution, we find that reduced average employer concentration in larger cities accounts for almost all variation in the (positive) link between city size-and wage inequality, except for the largest metropolises where it captures around 30-50 percent of variation depending on the income segment that we focus on.

Keywords: Wage distribution; rent sharing; monopsony; linked employer-employee data; local labor markets (search for similar items in EconPapers)
JEL-codes: D22 J31 J42 R12 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2023-05-15
New Economics Papers: this item is included in nep-com, nep-eur, nep-lma and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:ratioi:0363

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