Monopsony in Labor Markets: A Meta-Analysis

When jobs offered by different employers are not perfect substitutes, employers gain wage-setting power; the extent of this power can be captured by the elasticity of labor supply to the firm. We collect 1320 estimates of this parameter from 53 studies. We find a prominent discrepancy between estimates of “direct” elasticity of labor supply to changes in wage (smaller) and the estimates converted from inverse elasticities (larger). This gap remains after we control for 22 additional variables, and use Bayesian Model Averaging and LASSO to address model uncertainty; however, it is less pronounced for studies employing an identification strategy. Furthermore, we find strong evidence implying that the literature on “direct” estimates is prone to selective reporting: negative estimates tend to be discarded, pulling up the mean reported estimate. Additionally, we point out several socioeconomic factors that seem to affect the degree of monopsony power.