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Labor Market Power and Between-Firm Wage (In)Equality

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  • Mertens, Matthias

Abstract

I study how labor market power affects firm wage differences using German manufacturing sector firm-level data (1995-2016). In past decades, labor market power increasingly moderated rising between-firm wage differences. This is because high-paying firms possess high and increasing labor market power and pay wages below competitive levels, whereas low-wage firms pay competitive or even above competitive wages. Over time, large, high-wage, high-productivity firms generate increasingly large labor market rents while charging comparably low product markups. This provides novel insights on why such top firms are profitable and successful. Using micro-aggregated data covering most economic sectors, I validate key results for multiple European countries.

Suggested Citation

  • Mertens, Matthias, 2023. "Labor Market Power and Between-Firm Wage (In)Equality," International Journal of Industrial Organization, Elsevier, vol. 91(C).
    • Handle: RePEc:eee:indorg:v:91:y:2023:i:c:s0167718723000863
    DOI: 10.1016/j.ijindorg.2023.103005
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    Keywords

    Firm wage differences; labor market power; monopsony; rent-sharing;
    All these keywords.

    JEL classification:

    • 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
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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