Industry concentration and labor market outcomes: the extent and evolution of employers' monopsonistic power in France (1993-2016)

How has the decline in competition on the product market impacted employers' monosponistic power on the labor market? A quantitative assessment in France. A growing body of evidence is pointing at structural trends at work in the US and other OECD countries, relating an increased industry concentration, that is, less competition on the product market, to macroeconomic changes on labor markets, such as a decline in the labor share, that is, the share of value-added which is allocated to workers ([1, [2). These developments have important implications on the evolution of wage inequality and consumer welfare, indeed recent empirical findings are attracting the attention of the media, with articles heralding the return of ¿Big business¿ in the US and calling for an appropriate policy response. Yet, there are competing mechanisms that can account for these develpments, with different policy implications. Indeed, a first interpretation of this outcome is that it is efficient. For instance, one possible story is that technological developments, such as the diffusion of Information and Communication Technologies (ICTs), together with increased competition on global goods markets, have pushed firms to re-organize so as to make an efficient use of scarce resources, such as managerial talent ([3). In a similar vein, one can argue that it be linked to the rise of ¿superstar firms¿, with the rise of Internet generating ¿winner takes all¿ markets: according to this view, Internet giants such as Google, Amazon of Facebook, which can leverage the skills of talented workers over worldwide integrated goods/services markets ([1). Alternatively, increased concentration can be interpreted as an inefficient outcome, with increased mark-ups pointing at the increasing weight of pure profit, that is, of rents, with firms constantly charging prices above marginal costs, while paying workers below their marginal product. This generates an inefficient equilibrium, where firms produce less than the socially optimal level of output, and hire less workers than what is socially desirable, thus generating inefficient structural unemployment. According to this view, policy shoud intervene in order to decrease employers' market power ([4). In order to determine which of these two alternative interpretations is more plausible, one must put the theory to the data. This is the purpose of the present project: estimate and quantify the link between increased concentration at the industry level, and increased power of employers on the labor market, using 1) structural estimation of a search-and-matching model of the labor market, as well as 2) exogenous tax policy reforms impacting low-skilled workers' social contributions. One potential mechanism that can explain how increased industry concentration has increased employers' market power on the labor market, is that firms have re-organized a lot over the last 20 years ([5), outsourcing a large share of their output process and focusing on core competencies. As a direct consequence, the occupational composition of firms has drastically changed, towards a higher specialization of tasks and occupations ([6,[7). At the aggregate level, this means that, for any given worker in a given occupation, the number of potential employers competing for her services decreases, thus raising employers' monopsonistic power. A direct consequence of such an evolution is that less job opportunities means that job-to-job flows have decreased, controlling for workers' characteristics, which is directly measurable in matched employer-employee data. France provides an ideal field of investigation, first because it has also experienced both an increase in industry concentration, and a decline in the labor share ([1). Second, INSEE, the French statistical institute (the counterpart of DANE in Colombia), makes available to researchers rich, high-quality matched employer-employee data (Déclaration de Données Sociales), with detailled information on workers' and firms' characteristics. That being said, the purpose and implications of the project are of general interest, as the results can contribute to the debate on whether governments in general should tackle monosponistic competition on the labor market. The theoretical part of the project is indeed general and aims at capturing key mechanisms in labor markets, as formalized in the search-and-matching literature. Once the model is finalized and the empirical approach identified (that is, choosing the most relevant moments to match in the data), an extension of the project will be to adapt the estimation in order to implement it on data which is available at the firm/estalishment level, such as the Colombian data (DANE annual Survey of Manufacturers). REFERENCES: [1 Autor, D., Dorn, D., Katz, L.F., Patterson, C., Van Reenen, J., "The Fall of the Labor Share and the Rise of Superstar Firms", mimeo, May 2017 [2 De Loecker,, J. And Eeckhout, J., "The Rise of Market Power and the Macroeconomic Implications", mimeo, Aug 2017 [3 Gabaix, X. And Landier, A., "Why has CEO pay increased so much", Quarterly Journal of Economics Vol 123, 1, Feb 2008 [4 Naidu, S., Posner, E.A., Weyl E.G., "Antitrust Remedies for Labor Market Power", Harvard Law Review, forthcoming [5 Harrigan, J., Reshef, A. and Toubal F., "The March of the Techies: Technology, Trade, and Job Polarization in France, 1994-2007", NBER working paper 22110, March 2016 [6 Song, J., Price, D.J., Bloom, N., Von Wachter, T., "Firming up inequality", mimeo, (2018) [7 Card, D., Heining, J. and Kline, P.,"Workplace Heterogeneity and the Rise of West German Wage Inequality", Quarterly Journal of Economics, 129, (Nov 2014)