3 - Empirical Evidence of Monopsony in Labor Markets

Summary

We provide an overview of the empirical results with ample references to the literature. There is a substantial body of research that establishes the pervasive presence of monopsony in labor markets. The root cause of monopsony power lies in the fact that labor markets are imperfect. In other words, labor supply functions are positively sloped, which allows the dominant employers to depress compensation by reducing employment. Moreover, there are various frictions that reduce an employee’s ability to respond to alternative employment opportunities. These include costs of job search, turnover, and mobility barriers.