The Employer Size-Wage Effect: Can Dynamic Monopsony Provide an Explanation?

Francis Green, Stephen Machin and Alan Manning

Oxford Economic Papers, 1996, vol. 48, issue 3, 433-55

Abstract: In this paper, the authors argue that a dynamic monopsony model, based on labor market frictions, predicts a positive relationship between wages and employer size, but also that the effect will be larger in the nonunion sector than in the union sector and larger for women than for men. They examine evidence on the employer size-wage effect using several microeconomic data sources and find it to be generally consistent with these predictions. After examining other theoretical explanations, their conclusion is that at least part of the employer size-wage effect is a result of monopsony power in the labor market. Copyright 1996 by Royal Economic Society.

Date: 1996
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