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Monopsony power and the demand for low-skilled workers

Published online by Cambridge University Press:  01 January 2023

Arnd Kölling Open the ORCID record for Arnd Kölling [Opens in a new window]
Arnd Kölling*
Affiliation:
Berlin School of Economics and Law, Germany
*
Arnd Kölling, Hocschule für Wirtschaft und Recht Berlin, Alt-Friedrichsfelde 60, D-10315 Berlin, Germany. Email: arnd.koelling@hwr-berlin.de
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Abstract

This study analyses firms’ labour demand when employers have at least some monopsony power. It is argued that without taking into account (quasi-)monopsonistic structures of the labour market, wrong predictions are made about the effects of minimum wages. Using switching fractional panel probit regressions with German establishment data, I find that slightly more than 80% of establishments exercise some degree of monopsony power in their demand for low-skilled workers. The outcome suggests that a 1% increase in payments for low-skilled workers would, in these firms, increase employment for this group by 1.12%, while firms without monopsony power reduce the number of low-skilled, by about 1.63% for the same increase in remuneration. The study can probably also be used to explain the limited employment effects of the introduction of a statutory minimum wage in Germany and thus leads to a better understanding of the labour market for low-skilled workers.

Keywords

Monopsonylabour demandlow-skilled workerslow wagesJ23J42C23D24
Type
Industry, skills and investment
Information
The Economic and Labour Relations Review , Volume 33 , Issue 2 , June 2022 , pp. 377 - 395
Copyright
Copyright © The Author(s) 2021

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