When do employers share? Rent sharing, monopsony and minimum wages

When firm productivity or product demand rises, workers typically share in the gains through higher wages or expanded employment. We show that for firms under monopsony with a binding minimum wage, this link from firm gains to worker outcomes breaks sharply. Revenue-productivity improvements raise revenues but not wages or employment: firms simply maintain the minimum wage and absorb the gains into higher wage markdowns. We find compelling evidence for these predictions using South African administrative data, based on a cross-sectional kink design as well as within-firm responses to internal and shift-share trade shocks. These results reveal a previously overlooked monopsonistic margin - productivity -induced markdown adjustment - and we show using a structural model that this substantially diminishes the intended returns of policies such as employment subsidies.