Maybe local monopsony isn’t such a big problem

I’ve been pawing through this topic, and the best paper I can find does not villify recent trends in local monopsony power:

Using data from the Longitudinal Business Database and Form W-2, I document trends in local industrial concentration from 1976 through 2015 and estimate the effects of that concentration on earnings outcomes within and across demographic groups. Local industrial concentration has generally been declining throughout its distribution over that period, unlike national industrial concentration, which declined sharply in the early 1980s before increasing steadily to nearly its original level beginning around 1990. Estimates indicate that increased local concentration reduces earnings and increases inequality, but observed changes in concentration have been in the opposite direction, and the magnitude of these effects has been modest relative to broader trends; back-of-the-envelope calculations suggest that the 90/10 earnings ratio was about six percent lower and earnings were about one percent higher in 2015 than they would have been if local concentration were at its 1976 level. Within demographic subgroups, most experience mean earnings reductions and all experience increases in inequality. Estimates of the effects of concentration on earnings mobility are sensitive to specification.

That is from Kevin Rinz at the U.S. Census Bureau.

Comments

The concrete that builds most cities is based on monopoly (a close cousin of monopsony) and patents themselves are a form of "noncompetitive behavior" yet it's generally acknowledged patents are good, so it's no surprise that monopsony is not so bad.

Bonus trivia: the USA it's been argued is a monopsony power when it comes to free trade, and can throw its weight around to get better terms for fair trade, as in fact arguably recently happened with the Trump deal.

That ain't trivia. There is no reason not to believe that the US can do better than free trade. Problems start when others behave the same way! Then everybody winds up worse than free trade. :-(

"it's generally acknowledged patents are good"

Perhaps in the 17th century patents may have served some use...but in the 20th and 21st centuries patents do nothing but delay technological innovation and enrich the lawyer class.

It's time to replace the patent system

+1

Parents pool in technology only serve as a sorry of kick-the-ladder model so that oligopolies can make sure to prevent others (small and big alike) from joining the small club of players (I'm looking at you, FANG+M).

*sorry->tool

I think one can discount the effect of local monopsony power [the only correct argument for a minimum wage, by the way] since the time mass motorization. :-)

108-99 LA

I haven't worked through the implications of this yet, but I've recently noticed an interesting feature of the Herfindahl Index: the "weighting" of sub-categories in the HH index is by the square of that category.

In notation, the HH index for firm employment share (say):
Sum(i) s(i)^2

which, when we make this into a function of regional sub-aggregates (k) becomes:
Sum(k) Sum(i in k) s(k)^2 s(i in k)^2 = Sum(k) s(k)^2 H(k)

where H(k) is the herfindahl for sub-category k i.e. H(k) = Sum(i in k) s(i in k)^2

Significantly, Mr. Rinz defines "national" concentration as H(n) = Sum(i) s(i) H(i), which is NOT the same national aggregate we expect to see if we look at the national distribution.

The squaring leads to very fast shrinkage of the smaller groups. In the standard formula, national industry concentration is driven mostly by largest regions (for that industry). There's also a shift-share effect in the change in the overall HH index:

DH = Sum(k) m(sk^2) DHk + Sum(k) m(Hk) D(sk^2)

Here, Dx refers to Delta(x), as in DH is the change in the aggregate HH index. In addition m(x) refers to the arithmetic mean so m(Hk) is the average of the region-k time-1 and time-0 Herfindahl index.

The first term is what the abstract refers to - the (weighted) within-region concentration changes. The data indicate that the typical region-industry has a falling concentration (DHk). However, for the aggregate what we care about is square-share weighted DHk, so if there is extreme regional concentration the median or "typical" DHk isn't particularly important. One plausible scenario is that a bunch of firms enter the low-share Tennessee auto sector while firms exit the high-share Michigan auto sector. Rinz's "average" may go down while standard national HHI will go up.

The second term is the regional-shift component; again in terms of changes of the squared share. Since we are working with squares, the shifts in the high-share (say 0.9 to 0.95) is a larger squared-change than the equivalent close-to-zero level (say 0.1 to 0.05). This creates a correlation - if the high-concentration regions are also high-share regions, and employment is further flowing into already high-share regions, we will tend to increase concentration.

Obviously the net effect of this is an empirical question and the details of your model will significantly affect what you think the effect on wages should be. However, this mathematical fact can help square the standard national results and the local results.

Nursing, especially in rural areas where there may be only a single employer (hospital) is the best example that I’ve encountered. I know that there is a paper somewhere on this and the conventional wisdom is that it’s gotten worse with all of the hospital mergers.

My actor friends also lamented the merger between Disney and Fox since it meant the behemoth got big and there were fewer places to work.

Returned onto us

"...back-of-the-envelope calculations"

Usually lead to back-of-the envelope conclusions.

Along the Same Lines..even a MONOPLY can be Successful/Productive.. .like At & T... for 70+ Years...but that's like hoping for a FOREVER Wise Philosopher King....which we know are very RARE.... unfortunately the evidence points in the opposite direction AKA. decades of Government FAILURES Socially & Financially otherwise known as PUBLIC SCHOOLS; AMTRAK, POST OFFICE. (didn't 2 European Countries Privatize their Post Offices??) , DMV,. VA MEDICAL SYSTEM

Comments for this post are closed