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Mobility and monopsony power in labor market: Evidence from China's hukou reform

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  • Li, Ningning
  • Shi, Hongqi
  • Wang, Yongjin
  • Zhang, Jie

Abstract

This paper investigates the impact of labor mobility on monopsony power exercised by micro-firms against workers. We estimate firm-specific wage markdown, departure of wage from marginal revenue product of labor (MRPL), from China’s disaggregate production dataset for the measurement of monopsony power. We employ a difference-in-difference estimation strategy to infer the causal relationship by using the non-uniform implementation of China’s hukou reform as an exogenous shock. The empirical results show that hukou system reform could widen wage markdowns, indicating the relaxation in internal migration restriction allow micro-firms to exert higher monopsony power. The positive impact of hukou reform on MRPL dominates the causality relationship. Our counterfactual experiment by eliminating the positive impact of hukou reform on monopsony power indicates the hukou reform accelerate the declining trend of China’s aggregate labor share.

Suggested Citation

  • Li, Ningning & Shi, Hongqi & Wang, Yongjin & Zhang, Jie, 2026. "Mobility and monopsony power in labor market: Evidence from China's hukou reform," Economic Analysis and Policy, Elsevier, vol. 89(C), pages 472-489.
    • Handle: RePEc:eee:ecanpo:v:89:y:2026:i:c:p:472-489
    DOI: 10.1016/j.eap.2025.12.016
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