Monopsony power and the demand for low-skilled workers

Arnd Kölling

The Economic and Labour Relations Review, 2022, vol. 33, issue 2, 377-395

Abstract: This study analyses firms’ labour demand when employers have at least some monopsony power. It is argued that without taking into account (quasi-)monopsonistic structures of the labour market, wrong predictions are made about the effects of minimum wages. Using switching fractional panel probit regressions with German establishment data, I find that slightly more than 80% of establishments exercise some degree of monopsony power in their demand for low-skilled workers. The outcome suggests that a 1% increase in payments for low-skilled workers would, in these firms, increase employment for this group by 1.12%, while firms without monopsony power reduce the number of low-skilled, by about 1.63% for the same increase in remuneration. The study can probably also be used to explain the limited employment effects of the introduction of a statutory minimum wage in Germany and thus leads to a better understanding of the labour market for low-skilled workers. JEL Codes : J23, J42, C23, D24

Keywords: Monopsony; labour demand; low-skilled workers; low wages (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:sae:ecolab:v:33:y:2022:i:2:p:377-395

DOI: 10.1177/10353046211042427

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