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The Dynamics of Power in Labor Markets: Monopolistic Unions versus Monopsonistic Employers

Author

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  • Salvanes, Kjell G
  • Dodini, Samuel
  • Willén, Alexander

Abstract

This paper brings together the modern literatures on monopsony power and labor unions by empirically examining the effects of unionization on the dynamics of worker earnings across differently concentrated markets. Exploiting tax reforms to union due deductions as exogenous shocks to unionization, we demonstrate that there is a steep unionization gradient over labor market concentration. We show that there is an equally steep gradient in the union wage premium over concentration and that the premium loads almost exclusively on highly concentrated markets. This result implies a potentially important role of unions as alleviating market failures induced by imperfect competition. To validate our findings and examine robustness to different types of shocks, we extend the analysis by exploiting the emergence of import competition from China as an exogenous shock to employer concentration. This analysis suggest that the negative earnings effect of labor market concentration is eliminated upon reaching a union density of approximately 63 percent at the firm.

Suggested Citation

  • Salvanes, Kjell G & Dodini, Samuel & Willén, Alexander, 2021. "The Dynamics of Power in Labor Markets: Monopolistic Unions versus Monopsonistic Employers," CEPR Discussion Papers 16834, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:16834
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    Cited by:

    1. is not listed on IDEAS
    2. Bassier, Ihsaan, 2023. "Firms and inequality when unemployment is high," Journal of Development Economics, Elsevier, vol. 161(C).
    3. Dodini, Samuel, 2023. "The spillover effects of labor regulations on the structure of earnings and employment: Evidence from occupational licensing," Journal of Public Economics, Elsevier, vol. 225(C).
    4. Bassier, Ihsaan, 2022. "Firms and inequality when unemployment is high," LSE Research Online Documents on Economics 117999, London School of Economics and Political Science, LSE Library.
    5. Bustos, Emil, 2024. "Collectively Bargained Wages and Female Earnings: Evidence from Swedish Local Governments," Working Paper Series 1494, Research Institute of Industrial Economics.
    6. Barth, Erling & Bryson, Alex & Dale-Olsen, Harald, 2025. "Turning non-members into members: Do public subsidies to union membership matter?," Journal of Economic Behavior & Organization, Elsevier, vol. 229(C).
    7. Samuel Dodini & Kjell G. Salvanes & Alexander Willén & Li Zhu & Alexander L.P. Willén, 2023. "The Career Effects of Union Membership," CESifo Working Paper Series 10469, CESifo.
    8. Brändle, Tobias, 2024. "Unions and Collective Bargaining: The Influence on Wages, Employment and Firm Survival," GLO Discussion Paper Series 1457, Global Labor Organization (GLO).
    9. Bassier, Ihsaan, 2022. "Firms and inequality when unemployment is high," LSE Research Online Documents on Economics 121970, London School of Economics and Political Science, LSE Library.
    10. Dodini, Samuel & Løken, Katrine & Willén, Alexander, 2022. "The Effect of Labor Market Competition on Firms, Workers, and Communities," Discussion Paper Series in Economics 17/2022, Norwegian School of Economics, Department of Economics.
    11. Dodini, Samuel & Stansbury, Anna & Willén, Alexander, 2023. "How Do Firms Respond to Unions?," Discussion Paper Series in Economics 25/2023, Norwegian School of Economics, Department of Economics.
    12. Martins, Pedro S. & Melo, António, 2024. "Making their own weather? Estimating employer labour-market power and its wage effects," Journal of Urban Economics, Elsevier, vol. 139(C).
    13. Patrick Bennett & Kjell Salvanes, 2024. "Changing patterns of inequality in Norway: the roles of gender, education, immigration and unions," Fiscal Studies, John Wiley & Sons, vol. 45(2), pages 205-224, June.
    14. Magne Mogstad & Kjell G. Salvanes & Gaute Torsvik, 2025. "Income Equality in the Nordic Countries: Myths, Facts, and Lessons," Journal of Economic Literature, American Economic Association, vol. 63(3), pages 791-839, September.
    15. Bustos, Emil, 2023. "The Effect of Centrally Bargained Wages on Firm Growth," Working Paper Series 1456, Research Institute of Industrial Economics.
    16. Lagos, Lorenzo, 2024. "Union Bargaining Power and the Amenity-Wage Tradeoff," IZA Discussion Papers 17034, Institute of Labor Economics (IZA).
    17. Suresh Naidu, 2022. "Is There Any Future for a US Labor Movement?," Journal of Economic Perspectives, American Economic Association, vol. 36(4), pages 3-28, Fall.
    18. Ihsaan Bassier, 2022. "Firms and inequality when unemployment is high," CEP Discussion Papers dp1872, Centre for Economic Performance, LSE.
    19. Popp, Martin, 2024. "Minimum Wages in Concentrated Labor Markets," IZA Discussion Papers 17357, Institute of Labor Economics (IZA).

    More about this item

    Keywords

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    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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