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Monopsony in local labour markets

Author

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  • Manning, Alan
  • Petrongolo, Barbara

Abstract

We investigate employer monopsony power in local labour markets in the UK. We propose a model in which market power stems from idiosyncratic worker preferences over non-wage attributes of jobs, including the commuting distance. This set-up delivers point-specific, overlapping local labour markets. The resulting concentration index reflects the intensity of commuting flows between local areas, and is lower than the conventional index based on self-contained, non-overlapping areas because commuting across local areas expand workers’ outside options. We estimate that employment concentration in local labour markets was slightly falling over the past 2 decades. The model-based concentration index is negatively correlated to local wages and performs better than other purely local concentration measures. However, in quantitative terms, the observed fall in concentration can predict only a negligible increase in wages.

Suggested Citation

  • Manning, Alan & Petrongolo, Barbara, 2024. "Monopsony in local labour markets," LSE Research Online Documents on Economics 137500, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:137500
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    File URL: https://researchonline.lse.ac.uk/id/eprint/137500/
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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
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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