Minimum Wages in Concentrated Labor Markets

Martin Popp ()
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Martin Popp: Institute for Employment Research (IAB), Nuremberg

No 17357, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Economists increasingly refer to monopsony power to reconcile the absence of negative employment effects of minimum wages with theory. However, systematic evidence for the monopsony argument is scarce. In this paper, I perform a comprehensive test of this argument by using labor market concentration as a proxy for monopsony power. Labor market concentration turns out substantial in Germany. Absent wage floors, higher concentration reduces wages and employment, reflecting monopsonistic conduct of firms. Sectoral minimum wages lead to negative employment effects in slightly concentrated or more competitive labor markets. This effect weakens with increasing concentration and, ultimately, becomes positive in highly concentrated or monopsonistic markets. Overall, the results lend empirical support to the monopsony argument, implying that conventional minimum wage effects on employment conceal heterogeneity across market forms.

Keywords: minimum wage; monopsony power; labor market concentration; markdown (search for similar items in EconPapers)
JEL-codes: D41 J23 J38 J42 (search for similar items in EconPapers)
Pages: 151 pages
Date: 2024-10
New Economics Papers: this item is included in nep-com, nep-inv and nep-lma
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