How has labour market power evolved? Comparing labour market monopsony in Peru and the United States

Abstract

We document and compare the extent and evolution of labour market power by employers on the US and Peruvian labour markets during the 2010s. Making use of a structural estimation model of labour market dynamics, we estimate differences in market power that workers face depending on their sector of activity, their age and educational level. In particular, we show that differences in cross-sectional market power are significant and higher than variations over the ten-year time span of our data. In contrast to findings of labour market power in developed countries, we document significant market power of employers vis-a-vis the tertiary educated workforce, regardless of age and sector. In contrast, for the primary educated workforce, market power seems to be high in (private) services and manufacturing. For secondary educated workers, only the mining sector stands out as moderately more monopsonistic than the rest of the labour market. We also show that at least for the 2010s, the market power remained broadly stable in Peru. We contrast these findings with similar estimates obtained for the United States where we are able to show that it is mostly the less educated workforce that faces market power. Moreover, we show that for the US, the labour market power has gradually increased over the past ten years, in line with the general rise in inequality, but mostly for those with short labour market tenure. We also discuss possible reasons for these findings, including for the differences of labour market power across skill levels. Especially, we discuss the reasons for polarization of market power that are specific to specific skill levels and locations.