Monopsony, Skills, and Labor Market Concentration

This paper extends the literature on monopsony and labor market concentration by taking a skillbased approach and estimates the causal effect of monopsony power on labor market outcomes. The prior literature has focused on industry and occupation concentration and likely overstates the degree of monopsony power, since worker skills are substitutable across different firms, occupations and industries. Exploiting linked employer-employee data that cover the universe of Norwegian workers over time, we find that our skill-based monopsony measure shows lower degrees of monopsony power than the conventional industry-and occupation-based measures. However, we also find that the gender gap in concentration is substantially larger using the skillbased measure relative to the occupation- or industry-based measures. Using mass layoffs and establishment closures as an exogenous shock to labor demand, we find that workers who experience a mass separation have substantially worse subsequent labor market outcomes when they are in more concentrated skill clusters. Our results point to the existence of employer market power in the economy that is driven by the concentration of skill demand across firms.