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

Ruediger Bachmann, Christian Bayer, Heiko Stüber () and Felix Wellschmied
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Heiko Stüber: Hochschule der Bundesagentur für Arbeit (HdBA)

No 15293, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: When employers face a trade-off between growing large and paying low wages—that is, when they have monopsony power—some productive employers will decide to acquire fewer 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 a steeper size-wage curve, invest less into marketing, and remain smaller. A model with labor market monopsony, product market power, and customer acquisition matching these features of the data predicts 10 percent lower aggregate labor productivity in East Germany.

Keywords: aggregate productivity; plant heterogeneity; unions; monopsony power; size-wage curve; monopolistic competition; 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: 70 pages
Date: 2022-05
New Economics Papers: this item is included in nep-com, nep-eur, nep-ind, nep-lma and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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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 (2023)
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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