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Monopsony in Spatial Equilibrium

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  • Matthew E. Kahn
  • Joseph Tracy

Abstract

An emerging labor economics literature studies the consequences of firms exercising market power in local labor markets. These monopsony models have implications for trends in earnings inequality. The extent of this market power is likely to vary across local labor markets. In choosing what market to live and work in, workers tradeoff wages, rents and local amenities. Building on the Rosen/Roback spatial equilibrium model, we investigate how the existence of local monopsony power affects the cross-sectional spatial distribution of wages and rents across cities. We find an employment-weighted elasticity of land prices to concentration of –0.034—similar to Rinz (2018) reported elasticity of compensation to concentration. This finding has implications for who bears the economic incidence of labor market power. We present two extensions of the model focusing on the role of migration costs and worker skill heterogeneity.

Suggested Citation

  • Matthew E. Kahn & Joseph Tracy, 2019. "Monopsony in Spatial Equilibrium," NBER Working Papers 26295, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:26295
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. An October Update on the 21st Century Cities Initiative at Johns Hopkins
      by Matthew E. Kahn in Environmental and Urban Economics on 2019-10-06 14:16:00

    More about this item

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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