Wage markups and buyer power in intermediate input markets

Leonard Treuren

No 746837, Working Papers of Department of Management, Strategy and Innovation, Leuven from KU Leuven, Faculty of Economics and Business (FEB), Department of Management, Strategy and Innovation, Leuven

Abstract: A rapidly growing literature suggests that monopsony power is common in US labor markets. I examine whether this result generalizes to Europe, where collective bargain ing agreements characterize labor markets. I use Dutch firm-level manufacturing data from 2007 to 2018, together with an efficient bargaining model and revenue function estimation. Wages are typically above the marginal revenue contribution of employees. This is not in line with monopsonistic labor markets but precisely what is expected when employees have bargaining power and can extract rents from their employers. In addition, I provide evidence of buyer power in intermediate input markets and show that firms that underpay their input suppliers on the margin set higher wage markups. This suggests that firms share rents generated in intermediate input markets with their employees. Firm-time-specific rent sharing elasticities indicate that firms increase wages on average by 0.22 percent following a 1 percent increase in quasi-rents per employee.

Pages: 59
Date: 2022-11
New Economics Papers: this item is included in nep-com
Note: paper number DPS 22.06
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Forthcoming in FEB Research Report Department of Economics

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