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Monopsony power and workers’ switching costs: Evidence from hospitals in China

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  • Luan, Mengna
  • Tao, Zhigang
  • Yuan, Hongjie

Abstract

Using a Chinese hospital-level data set from 2007 to 2018, we measure the monopsony power of hospitals over health care workers by estimating the labor supply elasticity with a hospital-specific labor demand instrument constructed from the number of emergency department visits. The two-stage least squares estimation results show that hospitals have market power over their employees with an implied labor supply elasticity of 1.14, which implies that the wage accounts for only 53% of the marginal revenue product of labor, significantly below the competitive level. More importantly, we find that hospitals’ monopsony power decreases when physicians have the freedom to practice at other hospitals while retaining their positions in their primary hospitals (multi-sited practice policy). Overall, we find that workers’ cost of switching away from employers explains the degree of monopsony power of employers over workers.

Suggested Citation

  • Luan, Mengna & Tao, Zhigang & Yuan, Hongjie, 2023. "Monopsony power and workers’ switching costs: Evidence from hospitals in China," Economics Letters, Elsevier, vol. 233(C).
    • Handle: RePEc:eee:ecolet:v:233:y:2023:i:c:s0165176523004299
    DOI: 10.1016/j.econlet.2023.111403
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    References listed on IDEAS

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    1. Anna Sokolova & Todd Sorensen, 2021. "Monopsony in Labor Markets: A Meta-Analysis," ILR Review, Cornell University, ILR School, vol. 74(1), pages 27-55, January.
    2. Austan Goolsbee & Chad Syverson, 2023. "Monopsony Power in Higher Education: A Tale of Two Tracks," Journal of Labor Economics, University of Chicago Press, vol. 41(S1), pages 257-290.
    3. Alan Manning, 2021. "Monopsony in Labor Markets: A Review," ILR Review, Cornell University, ILR School, vol. 74(1), pages 3-26, January.
    4. Tyler Ransom, 2022. "Labor Market Frictions and Moving Costs of the Employed and Unemployed," Journal of Human Resources, University of Wisconsin Press, vol. 57(S), pages 137-166.
    5. Elena Prager & Matt Schmitt, 2021. "Employer Consolidation and Wages: Evidence from Hospitals," American Economic Review, American Economic Association, vol. 111(2), pages 397-427, February.
    6. Stuart V. Craig & Matthew Grennan & Ashley Swanson, 2021. "Mergers and marginal costs: New evidence on hospital buyer power," RAND Journal of Economics, RAND Corporation, vol. 52(1), pages 151-178, March.
    7. Jordan D. Matsudaira, 2014. "Monopsony in the Low-Wage Labor Market? Evidence from Minimum Nurse Staffing Regulations," The Review of Economics and Statistics, MIT Press, vol. 96(1), pages 92-102, March.
    8. Ihsaan Bassier & Arindrajit Dube & Suresh Naidu, 2022. "Monopsony in Movers: The Elasticity of Labor Supply to Firm Wage Policies," Journal of Human Resources, University of Wisconsin Press, vol. 57(S), pages 50-86.
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    More about this item

    Keywords

    Labor monopsony power; Employee switching costs; Hospitals;
    All these keywords.

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets

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