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An Anatomy of Monopsony: Search Frictions, Amenities and Bargaining in Concentrated Markets

Author

Listed:
  • David W. Berger
  • Kyle F. Herkenhoff
  • Andreas R. Kostøl
  • Simon Mongey

Abstract

We contribute a theory in which three channels interact to determine the degree of monopsony power and therefore the wedge between a worker’s spot wage and her marginal product (henceforth, the wage markdown): (1) heterogeneity in worker-firm-specific preferences (nonwage amenities), (2) firm granularity, and (3) off- and on-the-job search frictions. We use Norwegian data to discipline each channel and then reproduce novel reduced-form empirical relationships between market concentration, job flows, wages and wage inequality. Our main exercise quantifies the contribution of each channel to income inequality and wage markdowns. The markdowns are 21 percent in our baseline estimation. Removing nonwage amenity dispersion narrows them by a third. Giving the next-lowest-ranked competitor a seat at the bargaining table narrows them by half. Removing search frictions narrows them by two-thirds. Each counterfactual shows decreased wage inequality and increased welfare.

Suggested Citation

  • David W. Berger & Kyle F. Herkenhoff & Andreas R. Kostøl & Simon Mongey, 2023. "An Anatomy of Monopsony: Search Frictions, Amenities and Bargaining in Concentrated Markets," NBER Working Papers 31149, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:31149
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    Cited by:

    1. Kyle Herkenhoff & Josh Lerner & Gordon M. Phillips & Francisca Rebelo & Benjamin Sampson, 2025. "Private Equity and Workers: Modeling and Measuring Monopsony, Implicit Contracts, and Efficient Reallocation," Working Papers 25-37, Center for Economic Studies, U.S. Census Bureau.
    2. Kostøl, Andreas Ravndal & Merkle, Matthew C. & Grindaker, Morten, 2024. "Layoff Costs and Learning about Employer Financial Distress," IZA Discussion Papers 17340, Institute of Labor Economics (IZA).
    3. Dalmazzo, Alberto & Leombruni, Roberto & Razzolini, Tiziano, 2023. "Anticipation Effects of EU Accession on Immigrants' Labour Market Outcomes," IZA Discussion Papers 16614, Institute of Labor Economics (IZA).
    4. Erin Wolcott, 2024. "Did Racially Motivated Labor Policy Reverse Equality Gains for Everyone?," Opportunity and Inclusive Growth Institute Working Papers 090, Federal Reserve Bank of Minneapolis.
    5. Berger, David & Hasenzagl, Thomas & Herkenhoff, Kyle & Mongey, Simon & Posner, Eric A., 2023. "Comments on the 2023 Draft Merger Guidelines: A Labor Market Perspective," IZA Discussion Papers 16401, Institute of Labor Economics (IZA).
    6. Francesco Amodio & Emanuele Brancati & Peter Brummund & Nicolás de Roux & Michele Di Maio, 2024. "Labor Market Power and Self-Employment Around the World," Documentos CEDE 21072, Universidad de los Andes, Facultad de Economía, CEDE.
    7. Berger, David & Hasenzagl, Thomas & Herkenhoff, Kyle & Mongey, Simon & Posner, Eric A., 2025. "Merger guidelines for the labor market," Journal of Monetary Economics, Elsevier, vol. 153(C).
    8. Amodio, Francesco & Brancati, Emanuele & Brummund, Peter & de Roux, Nicolás & Di Maio, Michele, 2024. "Global Labor Market Power," IZA Discussion Papers 16823, Institute of Labor Economics (IZA).
    9. Bryson, Alex & Dale-Olsen, Harald, 2024. "Job Search, Efficiency Wages and Taxes," IZA Discussion Papers 17385, Institute of Labor Economics (IZA).

    More about this item

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets

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