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Who Competes for Whom? Monopsony in Ability-Segregated Labor Markets

Author

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  • Luca Lorenzini

Abstract

I develop a general-equilibrium oligopsony model in which firms differ in their demand for worker ability, generating worker-specific monopsony power. Taking the model to matched employer–employee data for Italy and Germany reveals ability segregation that localizes competition: firms compete most intensely with similar firms targeting the same ability segment. In the calibrated model, monopsony power and welfare losses are largest for low- and high- ability workers, who face fewer effective employers. Output losses are modest relative to standard quantitative benchmarks. Labor-market power amplifies wage inequality because wider between-market wage dispersion outweighs compressed assortative matching and top wages.

Suggested Citation

  • Luca Lorenzini, 2026. "Who Competes for Whom? Monopsony in Ability-Segregated Labor Markets," CESifo Working Paper Series 12858, CESifo.
    • Handle: RePEc:ces:ceswps:_12858
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    References listed on IDEAS

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    1. Jan Eeckhout & Philipp Kircher & Cristina Lafuente & Gabriele Macci, 2021. "Corrigendum to Capital Investment in “Assortative Matching With Large Firms”," Econometrica, Econometric Society, vol. 89(4), pages 11-14, July.
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    More about this item

    Keywords

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    JEL classification:

    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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