Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/207400 
Year of Publication: 
2019
Series/Report no.: 
IZA Discussion Papers No. 12574
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
We build a model where firm size is a source of labor market power. The key mechanism is that a granular employer can eliminate its own vacancies from a worker's outside option in the wage bargain. Hence, a granular employer does not compete with itself. We show how wages depend on employment concentration and then use the model to quantify the effects of granular market power. In Austrian micro-data, we find that granular market power depresses wages by about ten percent and can explain 40 percent of the observed decline in the labor share from 1997 to 2015. Mergers decrease competition for workers and reduce wages even at non-merging firms.
Subjects: 
market power
labor share
search and matching
JEL: 
J31
J42
Document Type: 
Working Paper

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