The Impact of Market Structure on Wages, Fringe Benefits, and Turnover

Abstract

This paper examines the relationship between labor compensation and the structure of the product market, which is measured by the industry concentration ratio and by dummy variables for the existence and type of government regulation. Unlike previous studies that have estimated the impact of concentration and regulation on wages or earnings, this study extends the analysis to include the effect of market structure on employer-provided pensions and insurance and on voluntary labor turnover. The hypothesis that product market power raises labor compensation is supported by empirical results indicating that concentration increases wages and fringes but lowers voluntary labor turnover. Regulations that set minimum prices and restrict entry raise labor compensation, since wage premiums due to regulation are not offset by lower pensions and insurance or higher turnover. Other forms of regulation, such as profit regulation in public utilities, are found to reduce labor compensation, as evidenced by higher turnover or lower wages and fringes, or both.