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Monopsony in Movers: The Elasticity of Labor Supply to Firm Wage Policies

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  • Ihsaan Bassier
  • Arindrajit Dube
  • Suresh Naidu

Abstract

We provide new estimates of the separations elasticity, a proximate determinant of the labor supply facing a firm with respect to hourly wage, using matched Oregon employer-employee data. Existing estimates using individual wage variation may be biased by mismeasured wages and use of wage variation unrelated to firm choices. We estimate the impact of the firm component of wage variation on separations using both firm fixed effects estimated from a wage equation as well as a matched IV event study around employment transitions between firms. Separations are a declining function of firm wage policies: we find that the implied firm-level labor supply elasticities generated are around 4, consistent with recent experimental and quasi-experimental evidence, and that they are approximately 3 to 4 times larger that those using individual wages. Further, we find lower separations elasticities for low wage workers, high turnover sectors, and periods of economic downturn but with little heterogeneity by urban status or labor market concentration. We conclude that monopsonistic competition is pervasive, and largely independent of forces driving classical monopsony.

Suggested Citation

  • Ihsaan Bassier & Arindrajit Dube & Suresh Naidu, 2020. "Monopsony in Movers: The Elasticity of Labor Supply to Firm Wage Policies," NBER Working Papers 27755, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:27755
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    2. Carbonnier, Clément & Malgouyres, Clément & Py, Loriane & Urvoy, Camille, 2022. "Who benefits from tax incentives? The heterogeneous wage incidence of a tax credit," Journal of Public Economics, Elsevier, vol. 206(C).
    3. Michael A Clemens, 2022. "The economic and fiscal effects on the United States from reduced numbers of refugees and asylum seekers [Refugees without Assistance: English-language Attainment and Economic Outcomes in the Early," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 38(3), pages 449-486.
    4. Kory Kroft & Yao Luo & Magne Mogstad & Bradley Setzler, 2020. "Imperfect Competition and Rents in Labor and Product Markets: The Case of the Construction Industry," Working Papers tecipa-666, University of Toronto, Department of Economics.
    5. Langella, Monica & Manning, Alan Patrick, 2021. "The measure of monopsony," LSE Research Online Documents on Economics 113925, London School of Economics and Political Science, LSE Library.
    6. Demirci, Murat & Kırdar, Murat Güray, 2023. "The labor market integration of Syrian refugees in Turkey," World Development, Elsevier, vol. 162(C).
    7. Ronald Bachmann & Gökay Demir & Hanna Frings, 2022. "Labor Market Polarization, Job Tasks, and Monopsony Power," Journal of Human Resources, University of Wisconsin Press, vol. 57(S), pages 11-49.
    8. Monica Langella & Alan Manning, 2021. "Marshall Lecture 2020: The Measure of Monopsony [Monopsony in the UK]," Journal of the European Economic Association, European Economic Association, vol. 19(6), pages 2929-2957.
    9. Attila Lindner & Balazs Murakozy & Balazs Reizer & Ragnhild Schreiner, 2022. "Firm-level technological change and skill demand," CEP Discussion Papers dp1857, Centre for Economic Performance, LSE.
    10. Lawrence Mishel & Josh Bivens, 2021. "The Productivity-Median Compensation Gap in the United States: The Contribution of Increased Wage Inequality and the Role of Policy Choices," International Productivity Monitor, Centre for the Study of Living Standards, vol. 41, pages 61-97, Fall.

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    More about this item

    JEL classification:

    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets

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