Monopsony Makes Firms Not Only Small but Also Unproductive: Why East Germany Has Not Converged

Ruediger Bachmann, Christian Bayer, Heiko Stueber () and Felix Wellschmied
Authors registered in the RePEc Author Service: Heiko Stüber

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: When employers face a trade-off between being large and paying low wages—and in this sense have monopsony power—some productive employers decide to acquire few customers, forgo sales, and remain small. These decisions have adverse consequences for aggregate labor productivity. Using high-quality administrative data from Germany, we document that East German plants (compared to West German ones) face steeper size-wage curves, invest less into marketing, remain smaller, and are less productive. A model with labor market monopsony, product market power, and customer acquisition matching these features of the data predicts ten percent lower aggregate labor productivity in East Germany.

Keywords: aggregate productivity; plant heterogeneity; collective bargaining; monopsony power; size-wage curve; customer capital; size distortions (search for similar items in EconPapers)
JEL-codes: E20 E23 E24 J20 J42 J50 (search for similar items in EconPapers)
Pages: 76
Date: 2023-02
New Economics Papers: this item is included in nep-com, nep-eur, nep-ind and nep-lma
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Monopsony Makes Firms not only Small but also Unproductive: Why East Germany has not Converged (2024)
Working Paper: Monopsony Makes Firms Not Only Small but Also Unproductive: Why East-Germany Has Not Converged (2022)
Working Paper: Monopsony Makes Firms not only Small but also Unproductive: Why East Germany has not Converged (2022)
Working Paper: Monopsony Makes Firms Not Only Small but Also Unproductive: Why East Germany Has Not Converged (2022)
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