Some implications of monopsony models

More workers ought to be in larger firms, as those firms are afraid to hire more, knowing that bids up wages for everyone.  Therefore (ceteris paribus) the large firms in the economy ought to be larger.

Raising the legal minimum wage also reallocates workers into larger firms, and again makes them larger.

Tough stuff if you worry a lot about both monopoly and monopsony at the same time — choose your poison!

I have adapted those points from a recent paper by David Berger, Kyle Herkenhoff, and Simon Mongey, “Labor Market Power.”  On the empirics, they conclude: “Our theory implies that this declining labor market concentration increase labor’s share of income by 2.89 percentage points between 1976 and 2014, suggesting that labor market concentration is not the reason for a declining labor share.”  So the paper makes no one happy (good!): monopsony is significant, but has been declining in import.


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