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The cyclical behaviour of employers' monopsony power and workers' wages

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  • Hirsch, Boris
  • Jahn, Elke J.
  • Schnabel, Claus

Abstract

This paper investigates the behaviour of employers' monopsony power and workers' wages over the business cycle. Using German administrative linked employer employee data for the years 1985-2010 and an estimation framework based on duration models, we construct a time series of the firm-level labour supply elasticity and estimate its relationship to the aggregate unemployment rate. In line with theory, we find that firms possess more monopsony power during economic downturns, which shows to be robust to controlling for time-invariant unobserved worker heterogeneity. We also document that cyclical changes in workers' entry wages are of similar magnitude as those predicted under monopsonistic wage setting, suggesting that monopsony power should not be neglected when analysing wage cyclicality. -- In diesem Papier untersuchen wir das zyklische Verhalten von Monopsonmacht und Löhnen. Unter Verwendung administrativer deutscher Arbeitgeber Arbeitnehmer-Daten für die Jahre 1985-2010 und eines Schätzansatzes basierend auf Verweildauermodellen konstruieren wir eine Zeitreihe der Arbeitsangebotselastizität auf Firmenebene und untersuchen deren Zusammenhang mit der aggregierten Arbeitslosenquote. Im Einklang mit der Theorie finden wir, dass die Monopsonmacht der Firmen in konjunkturellen Schwächephasen ausgeprägter ist, selbst wenn für unbeobachtete Heterogenität seitens der Beschäftigten kontrolliert wird. Zudem zeigen wir, dass zyklische Schwankungen in den Einstiegslöhnen eine ähnliche Größe aufweisen wie unter monopsonistischer Lohnsetzung prognostiziert. Beides deutet darauf hin, dass Monopsonmacht bei Analysen und Lohnzyklizitäten berücksichtigt werden sollte.

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Bibliographic Info

Paper provided by Friedrich-Alexander-University Erlangen-Nuremberg, Chair of Labour and Regional Economics in its series Discussion Papers with number 89.

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Date of creation: 2013
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Handle: RePEc:zbw:faulre:89

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Web page: http://www.arbeitsmarkt.wiso.uni-erlangen.de/english-version/
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Keywords: monopsony power; business cycle; entry wages;

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  1. Torberg Falch, 2010. "The Elasticity of Labor Supply at the Establishment Level," Journal of Labor Economics, University of Chicago Press, vol. 28(2), pages 237-266, 04.
  2. Boris Hirsch & Thorsten Schank & Claus Schnabel, 2010. "Differences in Labor Supply to Monopsonistic Firms and the Gender Pay Gap: An Empirical Analysis Using Linked Employer-Employee Data from Germany," Journal of Labor Economics, University of Chicago Press, vol. 28(2), pages 291-330, 04.
  3. William M. Boal & Michael R. Ransom, 1997. "Monopsony in the Labor Market," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 86-112, March.
  4. Abbring, Jaap H & van den Berg, Gerard J, 2007. "The Unobserved Heterogeneity Distribution in Duration Analysis," CEPR Discussion Papers 6219, C.E.P.R. Discussion Papers.
  5. Webber, Douglas A., 2013. "Firm-Level Monopsony and the Gender Pay Gap," IZA Discussion Papers 7343, Institute for the Study of Labor (IZA).
  6. Orley C. Ashenfelter & Henry Farber & Michael R Ransom, 2010. "Labor Market Monopsony," Journal of Labor Economics, University of Chicago Press, vol. 28(2), pages 203-210, 04.
  7. Fitzenberger, Bernd & Osikominu, Aderonke & Völter, Robert, 2005. "Imputation rules to improve the education variable in the IAB employment subsample," FDZ Methodenreport 200503_en, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  8. Hirsch, Boris & Jahn, Elke J., 2012. "Is there monopsonistic discrimination against immigrants? First evidence from linked employer-employee data," Discussion Papers 79, Friedrich-Alexander-University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
  9. Barth, Erling & Dale-Olsen, Harald, 2009. "Monopsonistic Discrimination, Worker Turnover, and the Gender Wage Gap," IZA Discussion Papers 3930, Institute for the Study of Labor (IZA).
  10. Herbert Brücker & Elke J. Jahn, 2011. "Migration and Wage‐setting: Reassessing the Labor Market Effects of Migration," Scandinavian Journal of Economics, Wiley Blackwell, vol. 113, pages 286-317, 06.
  11. Douglas Staiger & Joanne Spetz & Ciaran Phibbs, 2008. "Is There Monopsony In The Labor Market? Evidence From A Natural Experiment," Working Papers 1115, Princeton University, Department of Economics, Industrial Relations Section..
  12. Julie L. Hotchkiss & Myriam Quispe‐Agnoli, 2013. "The Expected Impact of State Immigration Legislation on Labor Market Outcomes," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 32(1), pages 34-59, 01.
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