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Monopsony and Backloaded Compensation: Theory and Evidence from Public Accountants

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Listed:
  • Michael Rubens
  • Bernardo S. Silveira

Abstract

In monopsony models, wage markdowns induce deadweight loss and are therefore inefficient. Yet markdowns also arise in models with backloaded efficiency pay, where they are designed to induce effort among early-career workers and are thus efficient. To reconcile—and empirically distinguish—these two mechanisms, we build a dynamic model incorporating labor market power and endogenous effort. Estimating a team production model on novel data on U.S. public accounting firms, we find evidence of both: markdowns for junior workers and markups for senior ones reflect incentive-providing backloading, while monopsony power induces a ‘lifetime’ wage markdown of 15%.

Suggested Citation

  • Michael Rubens & Bernardo S. Silveira, 2026. "Monopsony and Backloaded Compensation: Theory and Evidence from Public Accountants," NBER Working Papers 35474, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:35474
    Note: IO LS
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    More about this item

    JEL classification:

    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • L84 - Industrial Organization - - Industry Studies: Services - - - Personal, Professional, and Business Services
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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