An Anatomy of Monopsony: Search Frictions, Amenities and Bargaining in Concentrated Markets

David Berger, Kyle Herkenhoff, Andreas Kostøl and Simon Mongey

No 31149, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: E02 J01 J42 (search for similar items in EconPapers)
Date: 2023-04
New Economics Papers: this item is included in nep-com, nep-ind and nep-lab
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Published as An Anatomy of Monopsony: Search Frictions, Amenities, and Bargaining in Concentrated Markets , David Berger, Kyle Herkenhoff, Andreas R. Kostøl, Simon Mongey. in NBER Macroeconomics Annual 2023, volume 38 , Eichenbaum, Hurst, and Ramey. 2024

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Related works:
Journal Article: An Anatomy of Monopsony: Search Frictions, Amenities, and Bargaining in Concentrated Markets (2024)
Chapter: An Anatomy of Monopsony: Search Frictions, Amenities, and Bargaining in Concentrated Markets (2023)
Working Paper: An anatomy of monopsony: Search frictions, amenities and bargaining in concentrated markets (2023)
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