Firm Market Power, Worker Mobility, and Wages in the US Labor Market

Sadhika Bagga

Journal of Labor Economics, 2023, vol. 41, issue S1, S205 - S256

Abstract: Worker mobility and wages have declined in the United States amid rising employer market power. I propose a theory of the labor market in which a decrease in employer competition, characterized by fewer firms per worker, drives the decline in worker mobility and wages. A finite and decreasing number of employers exert market power by excluding their offers from the outside options of their employees. This reduces the value of workers’ outside options and, consequently, their wages and transitions across employers. I quantify the model to explain the long-run decline in worker mobility and wages and examine its cross-sectional implications.

Date: 2023
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