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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%.
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  • 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

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    Cited by:

    1. Ziran Ding & Jose Garcia‐Louzao & Valentin Jouvanceau, 2025. "The dynamics of product and labour market power: Evidence from Lithuania," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 33(1), pages 165-194, January.
    2. Erin Wolcott, 2024. "Did Racially Motivated Labor Policy Reverse Equality Gains for Everyone?," Opportunity and Inclusive Growth Institute Working Papers 090, Federal Reserve Bank of Minneapolis.
    3. Silva, Jose I. & Okabe, Tomohito & Urzay, Sergi, 2025. "Labor share and market power in European firms," MPRA Paper 123442, University Library of Munich, Germany, revised 24 Jan 2025.
    4. Shubhdeep Deb & Jan Eeckhout & Aseem Patel & Lawrence Warren, 2022. "Market power and wage inequality," IFS Working Papers W22/40, Institute for Fiscal Studies.
    5. 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.
    6. 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.
    7. Garibaldi, Pietro & Turri, Enrico D., 2024. "Monopsony in Growth Theory," IZA Discussion Papers 17392, Institute of Labor Economics (IZA).
    8. Francesco Devicienti & Elena Grinza & Alessandro Manello & Davide Vannoni, 2025. "Employer cooperation, productivity and wages: new evidence from inter‐firm formal network agreements," Economica, London School of Economics and Political Science, vol. 92(365), pages 1-41, January.
    9. Chiara Bellucci & Armando Rungi, 2024. "Procompetitive effects of vertical takeovers. Evidence from the European Union," Papers 2411.12412, arXiv.org, revised Nov 2024.

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