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Demographics, labor market power and the spatial equilibrium

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  • Furbach, Nina

Abstract

This paper studies how demographics affect aggregate labor market power, the urban wage premium and the spatial concentration of population. I develop a quantitative spatial model in which labor market competitiveness depends on the demographic composition of the local workforce. Using highly disaggregated administrative data from Germany, I find that firms have more labor market power over older workers: The labor supply elasticity decreases from more than 2 to 1 from age 20 to 64. Calibrating the model with the reduced-form elasticity estimates, I find that differences in labor supply elasticities across age groups can explain 4% of the urban wage premium and 2% of the spatial concentration of population. Demographics and skill together account for 10% of the urban wage premium and 2% of agglomeration. JEL Classification: J11, J31, J42, R23

Suggested Citation

  • Furbach, Nina, 2024. "Demographics, labor market power and the spatial equilibrium," Working Paper Series 2906, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20242906
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    References listed on IDEAS

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    1. Stephen J. Redding & Esteban Rossi-Hansberg, 2017. "Quantitative Spatial Economics," Annual Review of Economics, Annual Reviews, vol. 9(1), pages 21-58, September.
    2. James Liang & Hui Wang & Edward P. Lazear, 2018. "Demographics and Entrepreneurship," Journal of Political Economy, University of Chicago Press, vol. 126(S1), pages 140-196.
    3. Ahlfeldt, Gabriel M. & Pietrostefani, Elisabetta, 2019. "The economic effects of density: A synthesis," Journal of Urban Economics, Elsevier, vol. 111(C), pages 93-107.
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    5. Boris Hirsch & Elke J. Jahn, 2015. "Is There Monopsonistic Discrimination against Immigrants?," ILR Review, Cornell University, ILR School, vol. 68(3), pages 501-528, May.
    6. Klick, Larissa & Schaffner, Sandra, 2019. "FDZ data description: Regional real estate price indices for Germany (RWI-GEO-REDX)," RWI Projektberichte, RWI - Leibniz-Institut für Wirtschaftsforschung, number 195945.
    7. Kevin Rinz, 2022. "Labor Market Concentration, Earnings, and Inequality," Journal of Human Resources, University of Wisconsin Press, vol. 57(S), pages 251-283.
    8. Anna Sokolova & Todd Sorensen, 2021. "Monopsony in Labor Markets: A Meta-Analysis," ILR Review, Cornell University, ILR School, vol. 74(1), pages 27-55, January.
    9. Efraim Benmelech & Nittai K. Bergman & Hyunseob Kim, 2022. "Strong Employers and Weak Employees: How Does Employer Concentration Affect Wages?," Journal of Human Resources, University of Wisconsin Press, vol. 57(S), pages 200-250.
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    More about this item

    Keywords

    demographics; Germany; monopsonistic competition; spatial equilibrium; urban wage premium;
    All these keywords.

    JEL classification:

    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • 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
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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