Monopoly’s neglected twin? The effect of labour market concentration on wages and inequality

Abstract

High labour market concentration (i.e. the concentration of employment or hiring in a small number of firms) may allow employers to suppress wages. This chapter uses linked employer-employee data from seven OECD countries to analyse the extent of labour market concentration across countries, industries, geographical areas and groups of workers, as well as its effects on wages. The main findings are: (1) a significant share of workers (around 20%) are employed in highly-concentrated labour markets, especially in manufacturing and rural areas; (2) high labour market concentration reduces wages; (3) negative wage effects tend to be particularly pronounced for low-qualified workers; and (4) over the past two decades, negative wage effects have become stronger at any given level of concentration, but concentration itself has remained broadly flat. These results imply that labour market concentration is a relevant issue from the perspective of public policies aiming to address inequality but cannot explain broader economic trends related to wage stagnation and the decline in the labour income share experienced by a number of countries over the past two decades. This chapter has been written by an OECD team consisting of Michael Koelle, Nathalie Scholl and Cyrille Schwellnus with contributions of: Antoine Bertheau (University of Copenhagen, DENMARK), Chiara Criscuolo (OECD), Antton Haramboure (OECD), Alexander Hijzen (OECD), Balazs Murakőzy (University of Liverpool, HUNGARY), Satu Nurmi (Statistics Finland/VATT, FINLAND), Vladimir Peciar (Ministry of Finance of the Slovak Republic, SLOVAK REPUBLIC), Kevin Rinz (US Census Bureau, UNITED STATES), Catalina Sandoval and Jonathan Garita (Costa Rica Central Bank, COSTA RICA). Matej Bajgar, Chiara Criscuolo and Jonathan Timmis kindly provided the sales concentration data. For details on the data used in this chapter please see the standalone Data Annex and Disclaimer Annex.