The Cyclical Behaviour of Employers' Monopsony Power and Workers' Wages

Boris Hirsch, Elke Jahn and Claus Schnabel

No 7776, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper investigates the behaviour of employers' monopsony power and workers' wages over the business cycle. Using German administrative linked employer-employee data for the years 1985-2010 and an estimation framework based on duration models, we construct a time series of the firm-level labour supply elasticity and estimate its relationship to the aggregate unemployment rate. In line with theory, we find that firms possess more monopsony power during economic downturns, which shows to be robust to controlling for time-invariant unobserved worker heterogeneity. We also document that cyclical changes in workers' entry wages are of similar magnitude as those predicted under monopsonistic wage setting, suggesting that monopsony power should not be neglected when analysing wage cyclicality.

Keywords: monopsony power; business cycle; entry wages (search for similar items in EconPapers)
JEL-codes: J31 J42 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2013-11
New Economics Papers: this item is included in nep-bec, nep-hrm, nep-lab, nep-lma and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published - substantially revised version published as "Do employers have more monopsony power in slack labor markets?" in: Industrial and Labor Relations Review, 2018, 71(3), 676-704

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Related works:
Working Paper: The cyclical behaviour of employers' monopsony power and workers' wages (2014)
Working Paper: The cyclical behaviour of employers' monopsony power and workers' wages (2013)
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