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Immigration, monopsony and the distribution of firm pay

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  • Amior, Michael
  • Stuhler, Jan

Abstract

We argue that the arrival of immigrants with low reservation wages can strengthen the monopsony power of firms. Firms can exploit "cheap" migrant labor by offering lower wages, though at the cost of forgoing potential native hires who demand higher wages. This monopsonistic trade-off can lead to large negative effects on native employment, which exceed those in competitive models, and which are concentrated among low-paying firms. To validate these predictions, we study changes in wage premia and employment across the firm pay distribution, during a large immigration wave in Germany. These adverse effects are not inevitable and may be ameliorated through policies which constrain firms' monopsony power over migrants.

Suggested Citation

  • Amior, Michael & Stuhler, Jan, 2024. "Immigration, monopsony and the distribution of firm pay," LSE Research Online Documents on Economics 126815, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:126815
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    More about this item

    Keywords

    immigration; monopsony; firms;
    All these keywords.

    JEL classification:

    • 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
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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