Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/301034 
Year of Publication: 
2024
Series/Report no.: 
ECONtribute Discussion Paper No. 328
Publisher: 
University of Bonn and University of Cologne, Reinhard Selten Institute (RSI), Bonn and Cologne
Abstract: 
When employers face a trade-off between being large and paying low wages - and in this sense have monopsony power - some productive employers decide to acquire few 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 steeper size-wage curves, invest less into marketing, remain smaller, and are less productive. A model with labor market monopsony, product market power, and customer acquisition matching these features of the data predicts ten percent lower aggregate labor productivity in East Germany
Subjects: 
aggregate productivity
plant heterogeneity
collective bargaining
monopsony power
size-wage curve
customer capital
size distortions
JEL: 
E20
E23
E24
J20
J42
J50
Document Type: 
Working Paper

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