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Concentration in U.S. local labor markets: evidence from vacancy and employment data

Author

Listed:
  • Claudia Macaluso

    (University of Illinois at Urbana-Champaign)

  • Brad Hershbein

    (W.E. Upjohn Institute for Employment Res)

  • Chen Yeh

    (University of Illinois at Urbana-Champaign)

Abstract

This paper characterizes the cross-sectional and time-series properties of concentration in employment, job creation, and vacancy flows across U.S. local labor markets. We proceed in three steps: first, we derive conditions for indices of labor market concentration to be appropriate proxies for monopsony power. Then, we compute Herfindahl-Hirschman Indices at the local labor market level using data on the universe of online vacancies (BGT) and the universe of employers (LBD). Finally, we document that labor market monopsony does not manifest itself only through a negative effect on the level of wages, but also through a positive effect on the demand for skills. We find that (i) in the last decade, at most 5% of new U.S. jobs are in moderately concentrated local markets; (ii) local labor market concentration decreased over time, dropping by at least 25% since 1976. We reconcile our findings to previous studies on increasing national concentration through a statistical decomposition which implies that the covariance between a local labor market's size and its concentration level decreased over time. When it comes to the effects of monopsony, we find that a 1% increase in local labor market concentration is associated with a 0.14% decrease in average hourly wages, and an increase in the number of jobs requiring cognitive and social skills equal to 10-13% of the mean (``upskilling''). We conclude that our evidence is consistent with the presence of employers' market power and discuss how upskilling constitutes a policy challenge not readily addressed by increases in the minimum wage.

Suggested Citation

  • Claudia Macaluso & Brad Hershbein & Chen Yeh, 2019. "Concentration in U.S. local labor markets: evidence from vacancy and employment data," 2019 Meeting Papers 1336, Society for Economic Dynamics.
  • Handle: RePEc:red:sed019:1336
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    References listed on IDEAS

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    Cited by:

    1. Gregor Jarosch & Jan Sebastian Nimczik & Isaac Sorkin, 2019. "Granular Search, Market Structure, and Wages," NBER Working Papers 26239, National Bureau of Economic Research, Inc.
    2. Marinescu, Ioana & Ouss, Ivan & Pape, Louis-Daniel, 2021. "Wages, hires, and labor market concentration," Journal of Economic Behavior & Organization, Elsevier, vol. 184(C), pages 506-605.
    3. Gregor Jarosch & Isaac Sorkin & Jan Sebastian Nimczik, 2019. "Granular Search, Concentration and Wages," 2019 Meeting Papers 1018, Society for Economic Dynamics.
    4. Sebastian Heise & Fatih Karahan & Ayşegül Şahin, 2022. "The Missing Inflation Puzzle: The Role of the Wage‐Price Pass‐Through," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(S1), pages 7-51, February.
    5. Fernández-Villaverde, Jesús & Mandelman, Federico & Yu, Yang & Zanetti, Francesco, 2021. "The “Matthew effect” and market concentration: Search complementarities and monopsony power," Journal of Monetary Economics, Elsevier, vol. 121(C), pages 62-90.
    6. Jan de Loecker & Jan Eeckhout & Simon Mongey, 2021. "Quantifying Market Power and Business Dynamism in the Macroeconomy," Working Papers 1251, Barcelona School of Economics.
    7. Esteban Rossi-Hansberg & Pierre-Daniel Sarte & Nicholas Trachter, 2021. "Diverging Trends in National and Local Concentration," NBER Macroeconomics Annual, University of Chicago Press, vol. 35(1), pages 115-150.
    8. Samuel Dodini & Kjell Salvanes & Alexander L.P. Willén & Kjell G. Salvanes, 2021. "The Dynamics of Power in Labor Markets: Monopolistic Unions versus Monopsonistic Employers," CESifo Working Paper Series 9495, CESifo.
    9. Bassanini, Andrea & Batut, Cyprien & Caroli, Eve, 2021. "Labor Market Concentration and Stayers' Wages: Evidence from France," IZA Discussion Papers 14912, Institute of Labor Economics (IZA).
    10. Albert Jan Hummel, 2021. "Monopsony Power, Income Taxation and Welfare," CESifo Working Paper Series 9128, CESifo.
    11. Dan Cao & Erick Sager & Henry Hyatt & Toshihiko Mukoyama, 2019. "Firm Growth through New Establishments," 2019 Meeting Papers 1484, Society for Economic Dynamics.
    12. Albert Jan Hummel, 2021. "Monopsony power, income taxation and welfare," Tinbergen Institute Discussion Papers 21-051/VI, Tinbergen Institute.
    13. Philippe Askenazy & Verónica Escudero, 2022. "Dimension géographique des inégalités d’accès à l’emploi," Post-Print halshs-03801734, HAL.
    14. Zhuravleva, Nadezhda, 2021. "How Bad Is Labor Market Concentration?: Evidence From Soviet (Urban) Satellites," VfS Annual Conference 2021 (Virtual Conference): Climate Economics 242405, Verein für Socialpolitik / German Economic Association.

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