Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/263509 
Year of Publication: 
2022
Series/Report no.: 
IZA Discussion Papers No. 15293
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
When employers face a trade-off between growing large and paying low wages—that is, when they have monopsony power—some productive employers will decide to acquire fewer customers, forgo sales, and remain small. These decisions have adverse consequences for aggregate labor productivity. Using high-quality administrative data from Germany, we document that East German plants (compared to West German ones) face a steeper size-wage curve, invest less into marketing, and remain smaller. A model with labor market monopsony, product market power, and customer acquisition matching these features of the data predicts 10 percent lower aggregate labor productivity in East Germany.
Subjects: 
aggregate productivity
plant heterogeneity
unions
monopsony power
size-wage curve
monopolistic competition
customer capital
size distortions
JEL: 
E20
E23
E24
J20
J42
J50
Document Type: 
Working Paper

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