ERC Advanced Grant · 2022
Monopsony Power and Inequality
What is the role played by monopsony (monopoly power in the demand for labor) in widening earning inequalities? Recent studies documented the pervasiveness of monopsony power in modern labor markets. Monopsonistic employers can cut wages without losing workers to competitors, pay labor below its productivity and hire fewer workers than in a competitive labor market. The equilibrium is inefficient as the surplus given by market power is lower than the surplus extracted from workers who are also exposed to excessive work injury risk. Monopsony contributes to explain declining labor shares of income, persistently high levels of workplace accidents, and limited disemployment effects of minimum…
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