Monopsony in the Labor Market New Empirical Results and New Public Policies

The idea that firms have some market power in wage-setting has been slow to gain acceptance in economics. Indeed, until relatively recently, the textbooks viewed monopsony power as either a theoretical curiosum, or a concept limited to a handful of company towns in the past.¹ This view has been changing rapidly, driven by a combination of theoretical innovations, empirical findings, dramatic legal cases, and new data sets that make it possible to measure the degree of market power in different ways. A search of the EconLit database shows that the number of published journal articles mentioning “monopsony” rose from only two in the 1980s to 20 in the 1990s, 32 in the 2000s, and to 64 in the 2010s. This volume contains a set of 11 papers originally presented at the Sundance Conference on Monopsony in Labor Markets, organized by three of us (Ashenfelter, Farber and Ransom). Together the papers offer a rich perspective on the current state of research on market power in the labor market. Four of the papers use the framework pioneered by Manning (2003) to estimate the elasticity of labor supply to individual firms. A related paper looks at mobility frictions between cities. Three other papers, building on the “structure-conduct-performance” paradigm of industrial organization, relate the level of wages for specific subgroups of workers to measures of the local concentration of demand for their services (measured by the Herfindahl-Hirschman index). Finally, three papers look at the changing legal status of noncompete agreements and the limits of antitrust policy as a tool to reduce monopsony power.