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What drives wage stagnation: monopsony or monopoly?

Author

Listed:
  • Shubhdeep Deb

    (UPF Barcelona)

  • Jan Eeckhout

    (Institute for Fiscal Studies)

  • Aseem Patel

    (University of Essex)

  • Lawrence Warren

    (US Census Bureau)

Abstract

Wages for the vast majority of workers have stagnated since the 1980s while productivity has grown. We investigate two coexisting explanations based on rising market power: 1. Monopsony, where dominant firms exploit the limited mobility of their own workers to pay lower wages; and 2. Monopoly, where dominant firms charge too high prices for what they sell, which lowers production and the demand for labor, and hence equilibrium wages economy-wide. Using establishment data from the US Census Bureau between 1997 and 2016, we find evidence of both monopoly and monopsony, where the former is rising over this period and the latter is stable. Both contribute to the decoupling of productivity and wage growth, with monopoly being the primary determinant: in 2016 monopoly accounts for 75% of wage stagnation, monopsony for 25%.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Shubhdeep Deb & Jan Eeckhout & Aseem Patel & Lawrence Warren, 2022. "What drives wage stagnation: monopsony or monopoly?," IFS Working Papers W22/39, Institute for Fiscal Studies.
    • Handle: RePEc:ifs:ifsewp:22/39
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    References listed on IDEAS

    as
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    Cited by:

    1. Shubhdeep Deb & Jan Eeckhout & Aseem Patel & Lawrence Warren, 2022. "Market power and wage inequality," IFS Working Papers W22/40, Institute for Fiscal Studies.
    2. Mertens, Matthias & Mottironi, Bernardo, 2023. "Do larger firms exert more market power? Markups and markdowns along the size distribution," LSE Research Online Documents on Economics 121283, London School of Economics and Political Science, LSE Library.
    3. Gmeiner, Michael & Gmeiner, Robert, 2023. "Estimating the employment effect of the minimum wage through variation in compliance: evidence from five US states," LSE Research Online Documents on Economics 121277, London School of Economics and Political Science, LSE Library.
    4. Garibaldi, Pietro & Turri, Enrico D., 2024. "Monopsony in Growth Theory," IZA Discussion Papers 17392, Institute of Labor Economics (IZA).

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