Monopsony and Concentration in the Labor Market: Evidence from Vacancy and Employment Data∗

This paper characterizes the cross-sectional incidence, time dynamics and economic significance of employer market power in the U.S. labor market. We do so in two ways: first, we estimate plant-level markdowns using administrative data for U.S. manufactures and, second, we calculate market-level concentration indexes for the universe of U.S. employers. We quantify markdowns — the wedge between a plant’s marginal revenue product of labor and its wage — building on state-of-the-art industrial organization estimation techniques. We find that markdowns average at 78 percent in U.S. manufacturing and there is a substantial amount of dispersion across firms, even within detailed industries. We then document that markdowns are positively correlated with size — implying that measures of concentration based on firms’ employment shares are informative on labor market power. Given this positive relationship, we construct concentration indexes for the universe of U.S. employment and online vacancies. We find that (i) less than 5 percent of new jobs in the last decade are in concentrated markets, (ii) local labor market concentration has decreased while national labor market concentration has increased since the early 1980s. To understand this diverging trend, we use an Olley-Pakes statistical decomposition that identifies what can drive a wedge between local and national concentration. Estimating this decomposition, we find that a sustained decrease in the spatial dispersion of U.S. employment is able to account for the divergence. We interpret this evidence as suggesting that, over the last decades, U.S. local labor markets have become more and more “alike” in terms of their industry and employment composition. Finally, we provide evidence that local labor market concentration is negatively correlated with wages but positively correlated with skill demand — a phenomenon we refer to as “upskilling”. Our findings imply that policy interventions in oligopsonistic labor markets are unlikely to be successful if predicated on industry-level indicators or implemented with increases in the federal minimum wage. ∗Contact: Hershbein (hershbein@upjohn.org), Macaluso (cmacaluso.econ@gmail.com) and Yeh (chen.yeh@gmail.com). We thank Adrien Auclert, Christian Bayer, Steven J. Davis, Jan Eeckhout, Jason Faberman, Lisa Kahn, Loukas Karabarbounis, Ayşegül Şahin, and the audiences at the Barcelona Summer Forum EGF group, FRB Richmond Conference “Market Structure and the Macroeconomy”, ASSA/AEA Meetings 2019, IZA Workshop: Matching Workers and Jobs Online, Bonn 2018 EM3C conference, briq Worshop “Firms, Jobs, and Inequality”, University of Oslo-CEPR “Micro-consistent Macro” conference, Federal Reserve Board of Governors, FRB of Richmond, FRB of Chicago, and University of Connecticut for insightful comments. Andrea Atencio provided excellent research assistance. This research was conducted while Claudia Macaluso and Chen Yeh were Special Sworn Status researchers at the Federal Statistical Research Data Center in Chicago, IL. Any opinions and conclusions expressed herein are those of the authors and do not necessarily represent the views of the U.S. Census Bureau. All results have been reviewed to ensure that no confidential information is disclosed. First version: May 15, 2018.