Monopsony and Backloaded Compensation: Theory and Evidence from Public Accountants

Michael Rubens and Bernardo S. Silveira

No 35474, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In monopsony models, wage markdowns induce deadweight loss and are therefore inefficient. Yet markdowns also arise in models with backloaded efficiency pay, where they are designed to induce effort among early-career workers and are thus efficient. To reconcile—and empirically distinguish—these two mechanisms, we build a dynamic model incorporating labor market power and endogenous effort. Estimating a team production model on novel data on U.S. public accounting firms, we find evidence of both: markdowns for junior workers and markups for senior ones reflect incentive-providing backloading, while monopsony power induces a ‘lifetime’ wage markdown of 15%.

JEL-codes: J42 L84 M52 (search for similar items in EconPapers)
Date: 2026-07
Note: IO LS
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