Employer Market Power: Theory and Evidence
Friday, Jan. 3, 2020 2:30 PM - 4:30 PM (PDT)
- Chair: Matthew Gibson, Williams College
Low Wage Workers and the Enforceability of Covenants Not to Compete
AbstractWe exploit the 2008 Oregon ban on non-compete agreements (NCAs) for hourly-paid workers to provide the first evidence on the impact of NCAs on low-wage workers. We find that banning NCAs for hourly workers increased hourly wages by 2-3% on average. Since only a subset of workers sign NCAs, scaling this estimate by the prevalence of NCA use in the hourly-paid population suggests that the effect on employees actually bound by NCAs may be as great as 14-21%, though the true effect is likely lower due to labor market spillovers onto those not bound by NCAs. While the positive wage effects are found across the age, education and wage distributions, they are stronger for female workers and in occupations where NCAs are more common. The Oregon low-wage NCA ban also improved average occupational status in Oregon, raised job-to-job mobility, and increased the proportion of salaried workers without affecting hours worked.
Employer Market Power in Silicon Valley
AbstractThe falling labor share of income in the US has renewed interest in employer market power. I examine an important case of such power: no-poach agreements through which technology companies agreed not to compete for each other's workers. Exploiting the plausibly exogenous timing of a Department of Justice investigation, I estimate the effects of these agreements using double- and triple-difference designs. Data from Glassdoor.com permit the inclusion of rich employer- and job-level controls. Estimates indicate each agreement cost affected workers 2.6 to 4.0 percent of annual salary. Stock bonuses and worker mobility were also negatively affected.
Making Their Own Weather? Estimating Employer Labour-Market Power and Its Wage Effects
AbstractThe subdued wage growth observed over the last years in many countries has spurred renewed interest in monopsony views of the labour market. This paper is one of the first to measure the extent and robustness of employer labour-market power and its wage implications exploiting comprehensive matched employer-employee data. We find average (employment-weighted) Herfindhal indices of 800 to 1,100; and that less than 9\% of workers are exposed to concentration levels thought to raise market power concerns. However, these figures can increase significantly with different methodological choices. Finally, when controlling for both worker and firm heterogeneity and instrumenting for concentration, wages are found to be negatively affected by employer concentration, with elasticities of around -1.5%
Oligopsony and Government Employment Policy
AbstractWe study the effects of government employment when firms are large and have market power with respect to both product and labor markets. Government hiring competes with hiring by oligopsonistic firms and tends to reduce the markdown of real wages relative to the marginal product of labor and/or the markup over marginal costs. This result is in stark contrast to the standard monopolistic competition model, where the markup is exogenously given (by the elasticity of substitution parameter) and is not affected by government policy. We also show that, as policy tools to raise employment, competition policy and government employment are substitutes.
In our model, government employment increases overall employment, that is, there is a multiplier effect. While the existence of a multiplier in the model is in a way similar to Keynesian models of fiscal policy under imperfect competition, the mechanism through which government employment increases overall employment in the Keynesian models is different. In those models, the multiplier does not operate by reducing firms' market power. Instead of competing with the firms in either the labor market or the product market, the government purchases consumption goods from the monopolistic firms, financed through lump-sum taxes. This fiscal policy shifts demand from a non-produced good (as in Hart, 1982) or from leisure (as in Startz, 1989 and in Mankiw, 1988) to the produced-goods sector, increasing demand for those goods; in turn, this shift increases income and generates higher-round effects that end up increasing overall demand in the produced-goods sector by more than the shortfall resulting from taxation. In our model, government spending---rather than increasing demand for the oligopolistic firms' products---increases competition for workers in the labor market and thereby reduces the market power of those oligopolistic firms. Hence wages increase, which leads to upward movement along the labor supply curve.
- J2 - Demand and Supply of Labor
- J3 - Wages, Compensation, and Labor Costs