Do employers possess more monopsony power in slack labor markets?

Hirsch B, Jahn E, Schnabel C (2018)

Publication Language: English

Publication Type: Journal article

Publication year: 2018


Book Volume: 71

Pages Range: 676-704

Journal Issue: 3

DOI: 10.1177/0019793917720383


This article confronts monopsony theory’s predictions regarding workers’ wages with observed wage patterns over the business cycle. Using German administrative data for the years 1985 to 2010 and an estimation framework based on duration models, the authors construct a time series of the labor supply elasticity to the firm and estimate its relationship to the unemployment rate. They find that firms possess more monopsony power during economic downturns. Half of this cyclicality stems from workers’ job separations being less wage driven when unemployment rises, and the other half mirrors that firms find it relatively easier to poach workers. Results show that the cyclicality is more pronounced in tight labor markets with low unemployment, and that the findings are robust to controlling for time-invariant unobserved worker or plant heterogeneity. The authors further document that cyclical changes in workers’ entry wages are of similar magnitude as those predicted under pure monopsonistic wage setting.

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Hirsch, B., Jahn, E., & Schnabel, C. (2018). Do employers possess more monopsony power in slack labor markets? Industrial & Labor Relations Review, 71(3), 676-704.


Hirsch, Boris, Elke Jahn, and Claus Schnabel. "Do employers possess more monopsony power in slack labor markets?" Industrial & Labor Relations Review 71.3 (2018): 676-704.

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