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"Monopsony Makes Firms not only Small but also Unproductive: Why East Germany has not Converged"
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.
Keywords: aggregate productivity, plant heterogeneity, collective bargaining, monopsony power, size-wage curve, customer capital, size distortions
Date:
17 October 2023, 13:15
Venue:
Manor Road Building, Manor Road OX1 3UQ
Venue Details:
Seminar Room A or https://zoom.us/j/99960790792?pwd=L01NVnBQcGlqMVdQMHBiWDN3YmFMZz09
Speaker:
Christian Bayer (University of Bonn)
Organising department:
Department of Economics
Part of:
Macroeconomics Seminar
Booking required?:
Not required
Audience:
Members of the University only
Editor:
Shreyasi Banerjee
