Core readings

Robinson, J.V. (1933) The economics of imperfect competition. London: MacMillan.

Joan Robinson pioneered the economic study of imperfect competition, including the concept of monopsony in labor markets (in chapter 18).  

Burdett, Kenneth and Dale T. Mortensen. “Wage Differentials, Employer Size, and Unemployment”  International Economic Review, Vol. 39, No. 2 (May 1998), pp. 257-273.

Develops an influential and  widely used equilibrium search model of the labor market.  Models the labor market as the unique equilibrium of a game in which a continuum of individual employers choose permanent wage offers and a continuum of workers search by sequentially sampling from the set of offers. Wage dispersion is a robust outcome provided that workers search while employed as well as when unemployed. 

Manning, A. (2003) Monopsony in Motion: Imperfect Competition in Labor Markets. Princeton: Princeton University Press.

Manning's book updates the theory of monopsony in labor markets, and uses the theory to a understand wide array of patterns in labor markets. 

Lavetti, Kurt. “The Estimation of Compensating Wage Differentials: Lessons from the Deadliest Catch” Journal of Business & Economic Statistics 

Volume 38, 2020 - Issue 1

Uses longitudinal survey data from commercial fishing deckhands in the Alaskan Bering Sea to provide new insights on empirical methods commonly used to estimate compensating wage differentials and the value of statistical life.

Newer Resources

Card, David., Ana Rute Cardoso, Joerg Heining and Patrick Kilne, (2016). “Firms and Labor Market Inequality: Evidence and Some Theory,” Journal of Labor Economics, 36(S1):S12-S70.

Develops a model where workplace environments are viewed as imperfect substitutes by workers, and firms set wages with some degree of market power. Results show that this model matches the stylized empirical findings in the literature regarding rent-sharing elasticities and the structure of firm-specific pay premiums. 

Naidu, Suresh., Yaw Nyarko and Shing-Yi Wang, (2016). “Monopsony Power in Migrant Labor Markets: Evidence from the United Arab Emirates,” Journal of Political Economy, 124(6):1735-1792.

Estimates of the monopsony power of firms over migrant workers by exploiting a reform in the United Arab Emirates that relaxed restrictions on employer transitions. Results show that the reform increased incumbent migrants’ earnings and firm retention, while decreased demand for new migrants and lowered their earnings. 

Autor, David., David Dorn, Lawrence F. Katz, Christina Patterson and John Van Reenen, (2017). “The Fall of the Labor Share and the Rise of Superstar Firms,” NBER working paper number 23396.

Analyzes micro panel data from the U.S. Economic Census since 1982 and international sources and documents empirical patterns to assess a new interpretation of the fall in the labor share based on the rise of “superstar firms.” Findings are consistent with the hypothesis that product market concentration rises as industries become increasingly dominated by superstars.

Azar, Jose, Ioana Marinescu and Marshall I. Steinbaum, (2017). “Labor Market Concentration,” NBER working paper number 24147.

Calculates labor market concentration for over 8,000 geographic-occupational labor markets in the US, using data from the leading employment website CareerBuilder.com. A panel IV regression shows that going from the 25th percentile to the 75th percentile in concentration is associated with a 17% decline in posted wages, suggesting that concentration increases labor market power. 

Benmelech, Efraim., Nittai Bergman and Hyunseob Kim, (2018). “Strong Employers and Weak Employees: How Does Employer Concentration Affect Wages?” NBER working paper number 24307.

Studies the effect of local-level labor market concentration on wages, using Census data over the period 1977–2009. Results emphasize the role of local-level labor market monopsonies in influencing firm wage-setting behavior. This explains some of the stagnation of wages in the United States over the past several decades.

Paquette, D, and H. Long, (2018). "America’s gig economy is smaller now than before Uber existed, official data show," The Washington Post, June 7.

The gig economy has been shrunken because of Uber and Lyft, but the majority of them still relies on their traditional jobs as their main source of income. Meanwhile, independent contracting in fact shot up in cetain industries especially transportation, which further proves the above. 

Dube, Arindrajit, Laura Giuliano, and Jonathan Leonard.  Fairness and Frictions: The Impact of Unequal Raises on Quit Behavior  American Economic Review, 2019, 109 (2), 620.

This paper analyzes how separations responded to arbitrary differences in own and peer wages at a large U.S. retailer.  When raises are similar across peers within the workplace –this eliminating peer effects-- separations are quite insensitive to wages, suggesting that search frictions and monopsony are relevant in this low-wage sector. 

Dube, Arindrajit, Jeff Jacobs, Suresh Naidu, and Siddharth Suri. 2020. "Monopsony in Online Labor Markets." American Economic Review: Insights, 2 (1): 33-46.

The authors estimate labor supply elasticities to MTurk employers of about 0.1.  These low values are surprising in view of the seemingly low switching and search costs of on-demand labor markets.

Marinescu, Ioana E.,  Ivan Ouss, and Louis-Daniel Pape (2020) Wages, Hires, and Labor Market Concentration IZA discussion paper no. 13244, 

The authors the concentration of new hires by occupation and commuting zone in France using linked employer-employee data. Consistent with monopsony models, a 10% increase in labor market concentration decreases hires by 12.4% and the wages of new hires by nearly 0.9%.  A merger between the top two employers in the retail industry would result in about 24 million euros in annual lost wages for new hires, and an 8000 decrease in annual hires. 

Bassier, Ihsaan, Arindrajit Dube, and Suresh Naidu. 2020 Monopsony in Movers: The Elasticity of Labor Supply to Firm Wage Policies NBER working paper no. 27755

The authors estimate workers’ separation elasticity using matched Oregon employer-employee data. Their estimates imply a firm-level labor supply elasticity of around 4.  They conclude that monopsonistic competition is pervasive, and largely independent of forces (like employer concentration) driving classical monopsony.

Kroft, Kory, Yao Luo, Magne Mogstad, and Bradley Setzler (2020)  Imperfect Competition and Rents in Labor and Product Markets: The Case of the Construction Industry NBER working paper no. 27325

The authors quantify the importance of imperfect competition in the U.S. construction industry by estimating the size of rents earned by American firms and workers.  They find that American construction firms have significant wage- and price-setting power. Two thirds of the resulting rents are captured by the firms.

Prager, Elena and Matt Schmitt (2021) “Employer Consolidation and Wages: Evidence from Hospitals” American Economic Review 2021, 111(2): 397–427.

The authors study whether wage growth slows following hospital mergers.  Mergers reduce wage growth, but only when the increase in concentration is large and workers' skills are industry-specific.  The reductions in wage growth are attenuated in labor markets with strong labor unions.

Derenoncourt, Ellora, Clemens Noelke, and David Weil. Spillover Effects from Voluntary Employer Minimum Wages  unpublished paper, UC Berkeley, March 2021

 In recent years, several large, private U.S. employers have adopted company-wide minimum wages.  Using data from millions of online job ads, the authors study the effects of recently-introduced minimum wages at Amazon, Walmart, Target, and Costco on other local employers.   They show that these policies led to wage increases at low-wage jobs at other employers in the same commuting zone (CZ).  These results imply that Amazon and other large employers have monopsony power in local labor markets. 

Schubert, Gregor, Anna Stansbury, and Bledi Taska 2020  Employer Concentration and Outside Options Unpublished paper, Harvard University. 

The authors study the effect of employer concentration on wages using improved ways to isolate exogenous variation in employer concentration, and improved measures of workers’ outside options. Overall, the authors find that employer concentration reduces wages by a modest amount:  moving from the median to the 95th percentile of employer concentration reduces wages by 3%.  Since most U.S. workers are not in highly concentrated labor markets, their wages are not substantially affected by employer concentration.  Nonetheless, an important subset of workers in low-outward-mobility occupations and in small labor markets experience meaningful negative wage effects from employer labor market power.

Brooks, Wyatt, Joseph P. Kaboski, Illenin O. Kondo, Yao Amber Li, and Wei Qian (2021) Infrastructure Investment and Labor Monopsony Power  NBER working paper no 28977

Using panel data on manufacturing firms and an expansion of the national highway system in India,  the authors study whether transportation infrastructure disrupts local monopsony power in labor markets. They find that monopsony power in labor markets is reduced among firms near newly constructed highways relative to firms that remain far from highways. They estimate that the highways reduce wage markdowns significantly.

Card, David 2022. “Who Set Your Wage?” 2022 American Economic Review 112(4): 1075–1090  

The author discusses the recent literature on monopsonistic wage setting. Building on advances in search theory and in models of differentiated products, researchers have used a number of different strategies to identify the elasticity of firm-specific labor supply. A growing consensus is that firms have some wage-setting power, though many questions remain about the sources of that power.

Ashenfelter, Orley, David Card, Henry S. Farber and Michael R. Ransom 2022 “Monopsony in the Labor Market New Empirical Results and New Public Policies” Journal of Human Resources.

This paper summarizes the results of papers published in the April 2022 issue of the Journal of Human Resources: “Monopsony in the Labor Market: New Empirical Results and New Public Policies”.   In addition to measuring labor supply elasticities, the papers study the effects of local labor market concentration and collusion among employers.  This includes a detailed discussion the Silicon Valley High Tech Worker Conspiracy to suppress competition. 

Stansbury, Anna, Gregor Schubert and Bledi Taska 2022 “Employer Concentration and Outside Options” MIT, unpublished paper

The authors study the effect of within-occupation employer concentration and outside-occupation job options on wages in the US, identifying outside-occupation options using new occupational mobility data from 16 million resumes. They find that moving from a median level of employer concentration to the 95th percentile reduces wages by 2.6% overall.  This effect is much stronger (7.3%) for workers with few job options outside their own occupation. The authors argue that policymakers pay attention to employer concentration, but should also consider the availability of outside-occupation options to identify situations where employer concentration is likely to have the most detrimental effects on wages. 

Dube, Arindrajit, Suresh Naidu, and Adam D. Reich “Power and Dignity in the Low-Wage Labor Market: Theory and Evidence from Wal-Mart Workers” NBER working paper no. 30441

Using survey experiments of Walmart employees, the authors measure workers’ hypothetical quit elasticities, and find that workers have an economically significant willingness to pay for “dignity at work".  They also find that workers at low-dignity jobs have higher quit elasticities, compared to workers at high-dignity jobs.

Acemoglu, Daron, Alex X. He, and Daniel le Maire 2023 Eclipse of Rent-Sharing: The Effects of Managers’ Business Education on Wages and the Labor Share in the US and Denmark unpublished paper, MIT.

This paper provides evidence from the US and Denmark that managers with a business degree (“business managers”) reduce their employees’ wages. Within five years of the appointment of a business manager, wages decline by 6% and the labor share by 5 percentage points in the US, and by 3% and 3 percentage points in Denmark.  Evidence from manager retirements, manager deaths, and an instrumental variables (IV) strategy all indicate that these effects are likely causal. Further, the authors use IV methods (based on role models) to show that these effects result from practices and values acquired in business education (not self-selection into business education.  

Johnson, Matthew S. , Michael Lipsitz, and Alison Pei 2023 Innovation and the Enforceability of Noncompete Agreements NBER working paper no. 31487

The authors examine how the legal enforceability of NCAs affects innovation, as measured by patenting. They find that making NCAs easier to enforce (“stricter” enforceability) substantially reduces the rate of patenting: an average-sized increase in NCA enforceability leads a state to have 16-19% fewer citation-weighted patents over the following 10 years. This is because stricter NCA enforceability reduces job mobility and new business formation in innovative industries, reducing knowledge spread.

Non-Compete and No-Poaching Agreements

Dougherty, Conor, (2017). “Noncompete Pacts, Under Siege, Find Haven in Idaho,” New York Times, July 14.

The state of Idaho makes it much easier for companies to enforce noncompete agreements, which makes it one of the hardest places in America for someone to quit a job for a better one. 

Dougherty, Conor, (2017). “Quit your Job for a Better One? Not if you live in Idaho,” New York Times, July 17.

About a controversial 2016 Idaho law that makes it easier for employers to sue former employees over non-compete contracts; when it passed, opponents said it would make it difficult for employees to leave a job to start their own business or join another firm, and could hurt business expansion in Idaho.

Krueger, Alan B, and O. Ashenfelter, (2018). "Theory and Evidence on Employer Collusion in the Franchise Sector," NBER Working paper no. 24831.

Based on an analysis of 2016 Franchise Disclosure Documents, finds that "no-poaching of workers agreements" are included in a surprising 58 percent of major franchisors' contracts, including McDonald's, Burger King, Jiffy Lube and H&R Block. No-poaching agreements are more common for franchises in low-wage and high-turnover industries. Discusses the implicaitons of  no-poaching agreements for models of oligopsony.

Noguchi Yuki, (2018). ”Fast-Food Chains Back Away From Limits On Whom They Hire,” National Public Radio, July 12. 2018.

National fast-food chains agreed to eliminate a practice that limits their workers' ability to take jobs at other restaurants in the same chain. This is a great acommplishment since  80 percent of fast-food chains include such agreements, and 58 percent in franchised industries more generally. 

Gibson, Matthew. 2021 Employer Market Power in Silicon Valley IZA discussion paper no. 14843

This paper studies no-poach agreements through which Silicon Valley technology companies agreed not to compete for each other’s workers. Using Glassdoor data from before and after a US Department of Justice investigation, the authors estimate that a typical non-compete agreement cost workers approximately 2.5 percent of annual salary. Stock bonuses and ratings of job satisfaction were also negatively affected.

Mark, Julian. 2023 Noncompete clauses are everywhere, even for dancers and hair stylists.  Washington Post, March 10,  2023 (visited March 14, 2023.

As regulators take aim at noncompete agreements, people in five states talk about how they’ve been hampered in their attempts to change employers

Callaci, Brian, Matthew Gibson, Sergio Pinto, Marshall Steinbaum and Matt Walsh:  The Effect of Franchise No-Poaching Restrictions on Worker Earnings  IZA discussion paper no. 16330.

The authors evaluate the impact of the Washington State Attorney General's 2018-2020 enforcement campaign against employee no-poaching clauses in franchising contracts. Using Burning Glass Technologies job vacancies and Glassdoor salary reports, they estimate the nationwide effect of the enforcement campaign on pay at franchising chains across numerous industries, finding that workers’ earnings increased by about 5 percent after no-poaching clauses became unenforceable.

Roussille, Nina, and Benjamin Scuderi 2023. Bidding for Talent: A Test of Conduct in a High-Wage Labor Market IZA DP No. 16352

Using data on workers' choice sets and decisions over real jobs from a U.S. job search platform, the authors assess whether oligopsonistic or monopsonistic models better describe employers’ wage- and amenity-setting behavior.  They conclude that the monopsonistic model performs better, and that employers ‘mark down’ wages by 19.5%, relative to workers’ productivity.

Salary Benchmarking

Cullen, Zoe, Shengwu Li, and Ricardo Perez-Truglia 2022 “What’s My Employee Worth? The Effects of Salary Benchmarking” NBER working paper no. 30570

Most medium and large U.S. firms use data supplied by consultants about other firms’ wages to set their salaries, a practice that is known as salary benchmarking.  This paper conducts one of the first empirical studies of the effects of salary benchmarking.  Using administrative data from one of the leading providers of salary benchmarks, the authors show that benchmarking has a significant effect on pay setting that is consistent with their theoretical predictions.

Can wage increases pay for themselves?

Hedblomy, Daniel, Brent R. Hickmanz, and John A. List (2021)  Toward an Understanding of Corporate Social Responsibility: Theory and Field Experimental Evidence NBER working paper no. 26222

As part of their study of corporate CSR activities’ effects on employee recruitment and performance, the authors also exogenously varied the wages advertised when recruiting workers for their company. When their firm recruited workers with a $15/hr wage offer (as compared to a lower offer of $11/hr), its production costs may actually have decreased, due to selection of individuals who are more productive and produce higher quality work requiring fewer costly quality-control measures.

Wage Bargaining

Biasi, Barbara and Heather Sarsons. 2020 “Flexible Wages, Bargaining, and the Gender Gap” Quarterly Journal of Economics Volume 137, Issue 1, February 2022, Pages 215–266 

Using a 2011 reform that allowed Wisconsin school districts to set teachers’ pay more flexibly, the authors show that flexible pay increased the gender pay gap among teachers with the same credentials. Survey evidence suggests that the gap is partly driven by women not engaging in negotiations over pay, especially when their counterpart is a man. 

Massenkoff, Maxim, and Nathan Wilmers. 2023. "Wage Stagnation and the Decline of Standardized Pay Rates, 1974–1991." American Economic Journal: Applied Economics, 15 (1): 474-507.

Using new establishment-by-occupation microdata, the authors show that the use of discretionary wage setting significantly expanded in the 1970s and 1980s. Increasingly, wages for blue-collar workers were not standardized by job title or seniority but instead subject to managerial discretion. When establishments abandoned standardized pay rates, wages fell, particularly for the lowest-paid workers in a job and for those in establishments that previously paid above market rates. This shift away from standardized pay rates, in context of a broader decline in worker bargaining power, accelerated the decline in real wages experienced by blue-collar workers in the 1980s.

Retention

Glaser, Darrell J. and Ahmed S. Rahman. 2021 Between the Dockyard and the Deep Blue Sea: Retention and Personnel Economics in the Royal Navy  IZA Discussion paper no.  140137.

The authors study how promotions, payouts, positions, and peers affect worker retention.   Using random variation in task assignments and job promotions in the Royal Navy, they show that retention is bolstered by firm-specific human capital, while technological changes can reduce retention.  Retention is also reduced by a lack of promotion opportunities, and "exit contagion" from exits of former peers.

Compensating Differentials

Lavetti, Kurt. Compensating Wage Differentials in Labor Markets: Empirical Challenges and Applications Journal of Economic Perspectives 37 (3), 189-212

The model of compensating wage differentials is among the cornerstone models of equilibrium wage determination in labor economics. However, empirical estimates of compensating differentials have faced persistent credibility challenges. This article summarizes the basic theoretical model of compensating differentials, and summarizes several decades of empirical research devoted to estimating the size of compensating differentials.