Monopsony in local labour markets

Alan Manning and Barbara Petrongolo

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We investigate employer monopsony power in local labour markets in the UK. We propose a model in which market power stems from idiosyncratic worker preferences over non-wage attributes of jobs, including the commuting distance. This set-up delivers point-specific, overlapping local labour markets. The resulting concentration index reflects the intensity of commuting flows between local areas, and is lower than the conventional index based on self-contained, non-overlapping areas because commuting across local areas expand workers’ outside options. We estimate that employment concentration in local labour markets was slightly falling over the past 2 decades. The model-based concentration index is negatively correlated to local wages and performs better than other purely local concentration measures. However, in quantitative terms, the observed fall in concentration can predict only a negligible increase in wages.

Keywords: job search; reference dependence; reservation wages; wage cyclicality (search for similar items in EconPapers)
JEL-codes: J01 J1 L81 R14 (search for similar items in EconPapers)
Date: 2024-07-17
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Published in Oxford Open Economics, 17, July, 2024, 3, pp. i951-i958. ISSN: 2752-5074

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