The Cyclical Behaviour of Employers' Monopsony Power and Workers' Wages

31 Pages Posted: 4 Dec 2013

See all articles by Boris Hirsch

Boris Hirsch

University of Erlangen-Nuremberg

Elke J. Jahn

Institute for Employment Research (IAB); University of Bayreuth; IZA Institute of Labor Economics

Claus Schnabel

University of Erlangen-Nuremberg; IZA Institute of Labor Economics

Abstract

This paper investigates the behaviour of employers' monopsony power and workers' wages over the business cycle. Using German administrative linked employer-employee data for the years 1985-2010 and an estimation framework based on duration models, we construct a time series of the firm-level labour supply elasticity and estimate its relationship to the aggregate unemployment rate. In line with theory, we find that firms possess more monopsony power during economic downturns, which shows to be robust to controlling for time-invariant unobserved worker heterogeneity. We also document that cyclical changes in workers' entry wages are of similar magnitude as those predicted under monopsonistic wage setting, suggesting that monopsony power should not be neglected when analysing wage cyclicality.

Keywords: monopsony power, business cycle, entry wages

JEL Classification: J42, J31

Suggested Citation

Hirsch, Boris and Jahn, Elke J. and Schnabel, Claus, The Cyclical Behaviour of Employers' Monopsony Power and Workers' Wages. IZA Discussion Paper No. 7776, Available at SSRN: https://ssrn.com/abstract=2363277

Boris Hirsch (Contact Author)

University of Erlangen-Nuremberg ( email )

Schloßplatz 4
Erlangen, DE Bavaria 91054
Germany

HOME PAGE: http://www.arbeitsmarkt.wiso.uni-erlangen.de/english/hirsch_e.htm

Elke J. Jahn

Institute for Employment Research (IAB) ( email )

Regensburger Str. 104
Nuremberg, 90478
Germany

University of Bayreuth ( email )

Bayreuth, 95447
Germany

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Claus Schnabel

University of Erlangen-Nuremberg ( email )

Institut für Wirtschaftsforschung
Lange Gasse 20
D-90403 Nuernberg
Germany
+49 911 5302 330 (Phone)
+49 911 5302 721 (Fax)

HOME PAGE: http://https://www.arbeitsmarkt.rw.fau.de/english-version/staff/prof-dr-claus-schnabel/

IZA Institute of Labor Economics

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

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