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The measure of monopsony: the labour supply elasticity to the firm and its constituents

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  • Nikhil Datta

Abstract

The estimation of labour supply elasticities is central to the measurement of monopsony power in the labor market. In this paper I provide new, firm-level estimates of the labour supply elasticity that distinguish between a recruitment elasticity (for potential new workers) and a separation elasticity (as relevant to incumbents). My study uses comprehensive HR data for a large multi-establishment firm in the UK. This setting allows me to develop job-establishment level variation in wages derived from both a government wage floor policy which only effects my firm under study and arbitrary variation in advertised wages resulting from idiosyncratic HR department decisions. My estimates show that, in contrast to common assumptions, the recruitment elasticity is almost double the size of the separation elasticity. Heterogeneity analysis is suggestive that differences in wage-saliency for job seekers versus incumbents is likely a factor in this difference. Combined the elasticities give a labour supply elasticity to the firm of 4.6 implying a wage markdown of 18% from the marginal product of labour. I find no evidence of spillovers from wage changes to the local market despite establishments being relatively large, indicating a monopsonistic wage setting framework is more suitable than an oligopsonistic one.

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  • Nikhil Datta, 2023. "The measure of monopsony: the labour supply elasticity to the firm and its constituents," CEP Discussion Papers dp1930, Centre for Economic Performance, LSE.
    • Handle: RePEc:cep:cepdps:dp1930
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    1. Justin Bloesch & Seung Joo Lee & Jacob P. Weber, 2024. "Do Cost-of-Living Shocks Pass Through to Wages?," Staff Reports 1126, Federal Reserve Bank of New York.

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    Keywords

    monopsony; recruitment elasticity; separation elasticity; markdown; market power;
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