A Human Capital Theory of Who Escapes the Grasp of the Local Monopsonist

Matthew Kahn and Joseph Tracy

No 31014, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Over the last thirty years, there has been a rise in several empirical measures of local labor market monopsony power. The monopsonist has a profit incentive to offer lower wages to local workers. Mobile high skill workers can avoid the lower monopsony wages by moving to other more competitive local labor markets featuring a higher skill price vector. We present a Roy Model of heterogeneous worker sorting across local labor markets that has several empirical implications. Monopsony markets are predicted to experience a “brain drain” over time. Using data over four decades we document this deskilling associated with local monopsony power. This means that observed cross-sectional wage gaps in monopsony markets partially reflect sorting on worker ability. Going forward the rise of work from home may act as a substitute for high-skill worker migration from monopsony markets.

JEL-codes: J42 (search for similar items in EconPapers)
Date: 2023-03
New Economics Papers: this item is included in nep-com, nep-ltv and nep-ure
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