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Estimating labor market monopsony power from a forward-looking perspective

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  • Han, Qingyang

Abstract

This paper proposes a new approach to estimate the monopsony power of the labor market based on a forward-looking model of firm wage posting and worker job separation. In contrast to the literature, workers make job switching decisions based on firm-specific wage growth trajectories associated with different employers. The model is estimated using a matched employer employee panel data from Germany. The separation elasticity estimated from this model is greater than that from the conventional approach, suggesting that ignoring worker responses to heterogeneous wage growth rates lead to a potential overestimation of the actual monopsony power.

Suggested Citation

  • Han, Qingyang, 2024. "Estimating labor market monopsony power from a forward-looking perspective," Economics Letters, Elsevier, vol. 244(C).
    • Handle: RePEc:eee:ecolet:v:244:y:2024:i:c:s0165176524005068
    DOI: 10.1016/j.econlet.2024.112022
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    More about this item

    Keywords

    Monopsony power; Firm-specific labor supply elasticity; Wage heterogeneity;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion

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