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Minimum Wages in Concentrated Labor Markets

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  • Popp, Martin

    (Institute for Employment Research (IAB), Nuremberg)

Abstract

Economists increasingly refer to monopsony power to reconcile the absence of negative employment effects of minimum wages with theory. However, systematic evidence for the monopsony argument is scarce. In this paper, I perform a comprehensive test of this argument by using labor market concentration as a proxy for monopsony power. Labor market concentration turns out substantial in Germany. Absent wage floors, higher concentration reduces wages and employment, reflecting monopsonistic conduct of firms. Sectoral minimum wages lead to negative employment effects in slightly concentrated or more competitive labor markets. This effect weakens with increasing concentration and, ultimately, becomes positive in highly concentrated or monopsonistic markets. Overall, the results lend empirical support to the monopsony argument, implying that conventional minimum wage effects on employment conceal heterogeneity across market forms.

Suggested Citation

  • Popp, Martin, 2024. "Minimum Wages in Concentrated Labor Markets," IZA Discussion Papers 17357, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp17357
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    More about this item

    Keywords

    minimum wage; monopsony power; labor market concentration; markdown;
    All these keywords.

    JEL classification:

    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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