Monopsony in the Labor Market

Abstract

This paper surveys recent theoretical and empirical research on monopsony in labor markets, broadly defined as upward-sloping labor supply to an employer. We compare older monopsony models based on small numbers of employers with newer models based on labor market frictions such as moving costs and search. We also compare older econometric approaches that focus on static wage-concentration relationships with newer approaches that focus on dynamics. Our review of empirical estimates suggests that monopsony power based on small numbers of employers is probably rare but occasionally large, while monopsony power based on frictions is probably widespread but small on average.