Results for “ozimek monopsony” 3 found
Arnold Kling on monopsony
Suppose that we accept as true the finding by Richard Freeman that the highest wages are paid at the most profitable firms. If there is a monopsony story there, I do not see how to tell it. A monopsonist would exploit its workers by paying low wages, so I would expect that if monopsony were prevalent then we would see the highest wages paid to the least profitable firms (the ones who are competitive in the labor market and cannot exploit their workers).
Arnold is right, here is the full link. Labor market monopsony is on the verge of becoming an overrated idea. To the extent monopsony is important in explain labor market phenomena, it is short-run monopsony, mostly because workers have extracted perks from the employer. That can lead to opportunism and problems with contract renegotiation, but it is not a distributional problem per se. Again, here is Adam Ozimek on monopsony.
How much monopsony power is there?
This is from Adam Ozimek:
…if big firms are bargaining down wages then why do labor economists consistently find a large firm wage premium? To take one example from many, one recent study on retailers found that after controlling for individual and store characteristics, firms with at least 1,000 employees pay 9% to 11% more than those employing 10 or fewer.
Third, if firms’ bargaining power over their employees is growing, then why are they increasingly contracting out for work? Lawrence Katz and Alan Krueger argue that from 2005 to 2015, the share of workers hired out through contract companies grew from 0.6% to 3.1%. A company with labor market power wouldn’t want to contract out work to another company. They’d want to hire workers directly to take advantage of that power.
Fourth, the CEA report points to the minimum wage literature as evidence of monopsony power. Leaving aside the debate over whether the minimum wage reduces employment (I say yes, the report says no) the literature clearly shows that the minimum wage increases prices. As Daniel Aaronson and Eric French have pointed out, the monopsony model implies that the minimum wage should increase employment and output, thereby decreasing prices. That prices rise is inconsistent with the monopsony model.
I say there is plenty of monopsony in the short run in individual situations, mostly because workers carve out perks for themselves in individual firms. In other words, if firms have some short-run bargaining power, it is because they have lost the longer-run bargaining power game.
Questions that are rarely asked
If monopsony power is an important feature of the labor market, and monopsony power should be prevalent when firms are bigger and therefore have a larger share of the local industry, then why do big firms pay more than small firms? The small mom and pops should be closest to operating in a competitive labor market and have little bargaining power, but they pay less. Maybe the productivity effects of big retailer outweigh the monopsony effect, but that just is another way of saying it’s not as an important feature of the market.
That is from Adam Ozimek.