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Minimum Wages in Concentrated Labor Markets

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  • Martin Popp

Abstract

Economists increasingly refer to monopsony power to reconcile the absence of negative employment effects of minimum wages with theory. However, systematic evidence for the monopsony argument is scarce. In this paper, I perform a comprehensive test of monopsony theory by using labor market concentration as a proxy for monopsony power. Labor market concentration turns out substantial in Germany. Absent wage floors, a 10 percent increase in labor market concentration makes firms reduce wages by 0.5 percent and employment by 1.6 percent, reflecting monopsonistic exploitation. In line with perfect competition, sectoral minimum wages lead to negative employment e ects in slightly concentrated labor markets. This effect weakens with increasing concentration and, ultimately, becomes positive in highly concentrated or monopsonistic markets. Overall, the results lend empirical support to the monopsony argument, implying that conventional minimum wage e ects on employment conceal heterogeneity across market forms.

Suggested Citation

  • Martin Popp, 2021. "Minimum Wages in Concentrated Labor Markets," Working Papers 214, Bavarian Graduate Program in Economics (BGPE).
    • Handle: RePEc:bav:wpaper:214_popp
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    File URL: https://bgpe.cms.rrze.uni-erlangen.de/files/2023/07/214_Minimum-Wages-in-Concentrated-Labor-Markets.pdf
    File Function: First version, 2021
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    Citations

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    Cited by:

    1. Martin Popp, 2023. "How elastic is labor demand? A meta-analysis for the German labor market," Journal for Labour Market Research, Springer;Institute for Employment Research/ Institut für Arbeitsmarkt- und Berufsforschung (IAB), vol. 57(1), pages 1-21, December.
    2. Demir, Gökay, 2023. "Labor Market Frictions and Spillover Effects from Publicly Announced Sectoral Minimum Wages," IZA Discussion Papers 16204, Institute of Labor Economics (IZA).
    3. Demir, Gökay, 2022. "Labor market frictions and spillover effects from publicly announced sectoral minimum wages," Ruhr Economic Papers 985, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.

    More about this item

    Keywords

    minimum wage; labor market concentration; monopsony; labor demand;
    All these keywords.

    JEL classification:

    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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