¶ Granular search, market structure, and wages

pdf link NBER link

¶ BibTeX

@article{jarosch2024granular,
  title={Granular search, market structure, and wages},
  author={Jarosch, Gregor and Nimczik, Jan Sebastian and Sorkin, Isaac},
  journal={Review of Economic Studies},
  pages={rdae004},
  year={2024},
  publisher={Oxford University Press US}
}

¶ Abstract

We develop a model where labor market structure affects the division of surplus between firms and workers. Using Austrian data we show that in more concentrated labor markets, workers are more likely to return to past employers. In our model, the possibility of these re-encounters endows firms with size-based market power since outside options are truly outside the firm: firms do not compete with their own vacancies. Hence, a worker’s outside option is worse when bargaining with a larger firm, and wages depend on market structure. The quantified model suggests that such size-based market power could substantially reduce wages.

¶ Notes and Excerpts

First, there is evidence from labor market settings that changes in market structure sometimes affect prices but not quantities, which is not a prediction of the standard model. For example, Prager and Schmitt (2022) study hospital mergers and find that merging employers reduce wages but not employment.

Empirically, we show that more concentrated markets indeed have higher re-encounter rates.

We use the Austrian labor market data base (AMDB) that covers the universe of private sector employment in Austria. For 1997 to 2015, the AMDB provides daily information on employment and unemployment spells, reports annual wages (including base pay and bonus payments) for each worker-firm combination, and contains worker characteristics (age, gender, nationality) and firm characteristics (industry, geographical location, age).